A 2-inch (50.8 mm) gallium oxide wafer is displayed at Hangzhou International Science and Technology Innovation Center of Zhejiang University in Hangzhou, Zhejiang Province on May 30, 2022. Photo: VCG

Chinese industry players said on Wednesday the strong market reaction to China's niche metal export rules highlight the globalized nature of the chip industry, which requires the participation and cooperation of every country involved. 

Officials and companies in countries such as the US and Japan are increasingly concerned over the potential impact of China's export controls on gallium and germanium, which took effect on Tuesday. They're quickly seeking alternatives and swiftly applying for licenses for fear of running out of these key materials used for chip manufacturing. 

Instead of sticking to a protectionist approach, and forming small groups that could potentially disrupt the industrial chain, key players in the sector should advocate for cooperation, industry players said.

From Tuesday, exporters were required to apply for permission before exporting items related to gallium and germanium. In the application, exporters must provide relevant export contracts, proof of the end users, as well as information on the importers and the end users, China's Ministry of Commerce (MOFCOM) said in early July.

While the rule did not mention an outright ban on exports of these two materials, it sent shockwaves across the global chip industry.

The US, for instance, plans to issue a first-time contract to US or Canadian companies by year-end to recover gallium, and is reportedly seeking to increase cooperation with Mongolia on rare-earth mineral reserves, according to the Wall Street Journal.

Japanese Industry Minister Yasutoshi Nishimura said in a press conference on Tuesday that Japan "does not believe the export curbs would have an immediate impact, but it will continue to monitor the situation," Reuters reported.

South Korea, another key player in the industrial chain, has stepped up monitoring of supply chains of key metals for chipmaking and high-tech industries.

Yonhap News Agency reported that South Korea's industry ministry held a meeting in Seoul with associations of chipmakers, display firms and other related sectors on Tuesday and discussed ways to protect the supply chains of the metals and related circumstances.

"The responses from these countries indicate that they are feeling the repercussions. Moreover, unlike in the past, the impact originates in the upstream, having a profound and diverse impact on the entire industry," Zhou Mi, a senior research fellow at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times on Wednesday.

"However, it is essential to note that it is the US that has initiated global industrial and supply chain readjustments by imposing curbs and sanctions on China," Zhou said.

These various moves have generated pronounced market instability, and recent actions regarding strategic reserves of critical minerals may exacerbate tensions and potentially generate unwarranted demands, leading to significant disruptions in the industry and supply chains, Zhou said.

China's Foreign Ministry clarified that the export controls don't target any specific country, and the country has always been committed to maintaining the security and stability of the global supply chain.

Gallium and germanium are widely used in the manufacturing of chips, communications and defense equipment, and other high-tech components. China is the top supplier of both materials, with exports of gallium accounting for 94 percent of global supply and those of germanium accounting for 83 percent, according to Bloomberg.

China's longstanding advantage in the area means that exploring new mines or reconstructing rare metal production chains will take time, Ma Jihua, a veteran industry analyst, told the Global Times on Wednesday.

Establishing new production chains could be costly, adding burdens to chip giants, and unwelcome by firms that are already under pressure amid US-led sanctions, Ma said.

Some US and European companies have moved swiftly to prepare the necessary documents, and they began to apply for export permits on Tuesday, according to media reports. 

More than that, despite Washington's rising calls for "decoupling," and years of sanctions and containment, global chip giants are still chasing opportunities in China. 

Advanced Micro Devices (AMD) said that it sees an opportunity to develop an artificial intelligence chip specifically for the Chinese market to comply with US export curbs, according to a Reuters report.

Lisa Su, CEO of AMD, said on an earnings call late Tuesday that China is an "important" market and that the semiconductor giant wants to be fully compliant with US export controls.

After resorting to all means, the US has failed to kick China out of the global semiconductor industry and led major semiconductor companies to realize that they cannot afford to abandon the Chinese market, Zhou said.

The expert emphasized that the potential for growth and development in China goes beyond temporary incentives like subsidies. Companies are more actively seeking opportunities to collaborate and innovate in the world's second-largest economy, as its immense potential and attractiveness are expected to remain strong in the long term.