China-USA, question and answer on chip and cloud. The EU intervenes: “Beijing threatens security”

BEIJING – A new chapter in the technology war between the United States and China. From August 1, announces the Beijing Ministry of Commerce, gallium and germanium, along with their chemical compounds, will be subject to export controls to “protect Chinese national security”. Exporters will have to apply for licenses from the Ministry if they want to start or continue to ship them out of the country and will have to communicate details of foreign buyers and their requests.

The key to semiconductors

Gallium and germanium are key metals for processing and manufacturing semiconductorsas well as used for solar panels and electric cars. A new chapter in the clash between the two superpowers, with the US which in the meantime is reportedly preparing to limit the access of Chinese companies to services cloud computing.

There is no indication that gallium and germanium licenses will not be granted, but this is clearly a response to Washington’s expansion of semiconductor export controls against Beijing. “As the United States and its allies continue to intensify the chip war and technological crackdownit is normal and indeed fundamental for China to take proactive measures to safeguard its technological development, security and national interests,” writes the Party press.

Analysts are divided on the repercussions that the Chinese move could have. For Eurasia researchers “this move will have limited impact on global supply, given the targeted reach. But it is about a warning meant to remind countries like the US, Japan and the Netherlands that China has retaliatory options and to dissuade them from imposing further restrictions on Chinese access to high-end chips and tools”.

On one thing the experts agree: for Beijing this is a move that could backfire. Accelerating other countries’ efforts to reconsider their over-reliance on anything from the Dragon. If at some point Beijing uses these new rules to limit shipments and cut supplies to other countries, prices will likely rise and it will become cheaper to increase production in Japan, Canada, the United States.

China is a major exporter of both minerals (according to the UK’s Critical Minerals Intelligence Centre, China is responsible for around 94% of global gallium production). And having kept mining and processing costs low, the Dragon remains the most cost-effective supplier.

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The move has not escaped the EU, however, with Commission spokeswoman Sonya Gospodina describing the Union as “concerned” because the materials in question “are used in a number of products that are essential for the digital and green transition. The Commission – he explains – is working on a detailed analysis of the announced measures and their potential impact on global value chains and also on European industry”. Meanwhile, however, Brussels fears “that these import restrictions” are “unconnected from the need to protect global peace and stability and from the implementation of the non-proliferation obligations deriving from international treaties”. And therefore urges “China to adopt an approach whereby export restrictions are based on clear security considerations, in line with World Trade Organization rules”.

The US response: Beijing out of the Cloud

In this technological war, however, Washington seems to already have the next blow ready. According to Wall Street Journalthe US is preparing to restrict Chinese companies’ access to cloud computing services. Forcing US cloud service providers like Amazon and Microsoft to seek permission from the US government before providing services using advanced artificial intelligence chips to Chinese customers.

A restriction that serves to “close a significant gap. National security analysts have warned that Chinese AI firms may have circumvented current export control rules by using cloud services. wsj.

Excellent weather on both sides on the eve of visit by Treasury Secretary Janet Yellen scheduled in Beijing from 6 to 9 July.