China’s semiconductor supply chain is facing new challenges as the country begins to flex its muscles in the global market. Yunnan Lincang Xinyuan Germanium Industrial, a Chinese stock, has seen a tremendous surge of 30% in just five days. This surge follows the announcement by China’s Commerce Ministry of export restrictions on germanium and gallium, two metals that are crucial for chip manufacturing and widely used in various industries including fiber optics and solar panels.
China currently produces the majority of the world’s supply of germanium and gallium, and the export restrictions will affect a significant portion of these materials that are shipped overseas. According to the U.S. Geological Survey, between 2018 and 2021, over half of the United States’ imports of these metals came from China. The impact of these export constraints is already being felt in the stock market, as Yunnan Germanium’s shares hit the upper trading limit for three consecutive days on the Shenzhen stock exchange.
Despite warning about a loss in the first half of the year, Yunnan Germanium’s share prices continue to rise, indicating the growth potential in certain Chinese chip subsectors. One investment firm, WestSummit Capital Management, recognizes the opportunities in the upstream part of the semiconductor supply chain, focusing on materials and equipment necessary for chip production rather than artificial intelligence. Managing director Bo Du believes that China can develop its own production equipment and materials for mature chips within two to three years, opening up a greater market for chip-related investments.
The export restrictions imposed by China come in response to sweeping U.S. export restrictions last year, which aimed to limit China’s access to advanced semiconductor technology. While some believe that these restrictions have had little impact on most semiconductor companies, they have had a psychological effect on investors. However, many investors are now returning to the sector, recognizing its potential for growth.
According to analyst Brian Tycangco, the latest export controls on germanium and gallium are just the beginning, and China may further strengthen its capabilities in the chip industry. This could lead to additional restrictions on chips, chipmaking equipment, and chip design, potentially escalating the ongoing chip war between China and the United States. As a result, the rare earth sector may experience a surge, with notable names such as Lynas Rare Earths, MP Materials, and China Rare Earth Holdings trading outside of mainland China.
The future of the chip industry and the global supply chain remains uncertain as geopolitical tensions continue to shape the landscape. However, Chinese firms are betting on their ability to strengthen their domestic chip production and supply, presenting opportunities for investors in the semiconductor sector.
In conclusion, the chip wars between China and the United States are heating up, with China imposing export restrictions on germanium and gallium, crucial metals for chip manufacturing. This has led to a surge in the stock prices of Yunnan Germanium and highlights the growth potential in certain Chinese chip subsectors. Investment firms, like WestSummit Capital Management, are capitalizing on the opportunities in the semiconductor supply chain, with a focus on materials and equipment. The impact of these export restrictions, combined with the broader geopolitical tensions, continues to shape the future of the chip industry and presents both challenges and opportunities for investors and manufacturers.
