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Who would have thought that two metallic elements on the periodic table would become the hot topic of the night?

On July 3rd, the Ministry of Commerce and the General Administration of Customs issued the "Announcement on the Implementation of Export Control on Gallium and Germanium-related Items" (hereinafter referred to as the "Announcement"). It points out that, in accordance with the relevant provisions of the "Export Control Law of the People's Republic of China," the "Foreign Trade Law of the People's Republic of China," and the "Customs Law of the People's Republic of China," in order to safeguard national security and interests, with the approval of the State Council, it is decided to implement export control on gallium and germanium-related items. Items that meet the relevant characteristics are not allowed to be exported without permission, and this announcement will officially come into effect on August 1, 2023.

What are the uses of these two substances? At present, the consumption fields of gallium include semiconductors and optoelectronic materials, solar cells, alloys, medical devices, magnetic materials, etc., among which the semiconductor industry is currently the largest consumer of gallium, accounting for about 80% of the total consumption. Germanium, as an equally important semiconductor material, has a wide and important application in semiconductors, aerospace measurement and control, nuclear physics detection, fiber optic communication, infrared optics, solar cells, chemical catalysts, biomedicine, and other fields.

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It can be said that gallium and germanium, two metals, play an indispensable role in the semiconductor industry. Although neither of them are rare earth elements, and their production is not high, the largest producing country is China. According to the report of the US Geological Survey, China is the world's largest producer of gallium and germanium, accounting for more than 95% of the world's gallium production and more than 67% of the germanium production. Between 2018 and 2021, 53% of the United States' gallium imports and 54% of the germanium imports came from China.

In fact, although the United States has a low reserve of gallium, its reserve of germanium is not low. At present, the total proven reserves of germanium in the world are about 8,000 tons, with the United States accounting for 3,800 tons, ranking first in the world. Gallium is also widely distributed around the world.

Many people may have such doubts in their hearts: after the country issues export control on gallium and germanium-related items, other countries, including the United States, can choose to produce these two metals themselves, to get rid of the dependence on Chinese materials.

Such ideas are not necessarily wrong, but gallium and germanium cannot be speculated with such a simple mindset. The behind-the-scenes of them are not much simpler than TSMC producing a 4nm chip.

Indispensable materials

First of all, it needs to be explained that gallium and germanium both belong to the rare and dispersed metals. These metals are characterized by extremely low crustal abundance and are very dispersed in rocks, making it difficult to enrich them. Some views even believe that they cannot form "independent ore deposits." These characteristics also determine that they need special ore-forming conditions and controlling factors to enrich into ore, and their ore-forming theory, exploration models, and exploration techniques are not completely the same as other types of ore deposits.

Although gallium is the rare and dispersed metal with the highest crustal abundance (15μg/g), it has the fewest independent minerals, with only two independent minerals, chalcopyrite (CuGaS2) and hydroxygallium (Ga(OH)3), found in the Tsumeb lead-zinc ore deposit in South Africa. The vast majority exist in the form of associated metals. At present, the vast majority of gallium that has been discovered is associated with bauxite ore deposits, mainly distributed in Africa, Oceania, South America, Asia, and other places.In the early 1960s, the metal gallium began to attract the attention of various countries. The research on gallium arsenide as a new type of high-quality semiconductor heated up, and with the excellent properties of gallium arsenide compounds as semiconductor materials being continuously discovered, gallium arsenide has also been widely applied to microwave devices, lasers, and light-emitting diodes, among other products.

Among gallium-related products, gallium nitride (GaN) is one of the most representative third-generation semiconductor materials and is currently the world's most advanced semiconductor material, while gallium arsenide (GaAs) is the representative of the second-generation semiconductor materials, occupying a major position in the development of microelectronic devices with high frequency, high speed, high temperature, and radiation resistance.

Looking at the national output in detail, China's gallium production is the highest in the world. Germany and Kazakhstan stopped gallium production in 2016 and 2013 respectively (Germany announced in 2021 that it will resume primary gallium production by the end of the year), and Hungary and Ukraine stopped gallium production in 2015 and 2019 respectively. In 2020, there were only three countries in the world that produced crude gallium from mineral raw materials, namely China, Japan, South Korea, and Russia. As the world's largest producer of crude gallium, China's global output accounted for more than 90% as of 2021.

As mentioned earlier, gallium mainly exists as a byproduct of bauxite, which also leads to the fact that people do not produce gallium separately, but refine it as a byproduct in the process of smelting alumina. Statistical data show that China's production of refined alumina only accounts for about half of the global total. So why can China stand out in the production of crude gallium with 50% of the production?

The reason is quite simple, no one does unprofitable business. After the value of gallium was discovered, the market price of crude gallium has been steadily declining, which has led to few alumina enterprises willing to expand production to refine gallium. In the 1970s, the price of gallium was as high as 3,000 US dollars per kilogram, and the production of gallium reached a historical peak of 575 tons in 2015, but the price was only 200-300 US dollars per kilogram. The low price for several consecutive years has already caused a large number of European and American alumina enterprises to withdraw from the market.

This also brings a problem, the short-term rise in the price of gallium cannot attract those enterprises to reopen the gallium refining factory again, because the cost of building a factory far exceeds this part of the price difference. If the price falls again after the factory is built, these passionate enterprises will be in tears.

Of course, national intervention is also a way to solve the problem. On March 9 this year, the United States and the European Union are promoting the drafting of a trade agreement focusing on critical minerals, that is, the initiative of the "Critical Minerals Club", and its purpose is to exclude the impact of China's supply of critical minerals.

However, the export restrictions on gallium, the most anxious should not be the United States and the European Union, but Japan, which is separated by the sea. Due to the advanced semiconductor industry in Japan, the annual consumption increase is large, and it is the largest consumer of gallium resources. By 2013, Japan's consumption of gallium reached 97 tons, mainly relying on imports and recycled gallium (gallium resource recycling), and the main source of imports is, of course, China.

In terms of the current situation, refining technology and refining facilities are not something that can be built overnight. There are existing gallium to buy, and no one is willing to spend a lot of effort to mine at a loss. The only way to buy large-scale spot goods is to buy from China, and the United States, the European Union, and Japan have not been able to avoid this.

Let's talk about germanium. Compared with gallium, it has some differences in detail. The content of germanium in the crust is 1.5 μg/g, and it is also difficult to form an independent mine, generally distributed in a dispersed state in minerals composed of other elements. Germanium-containing ore deposits can be divided into "coal-type" germanium-containing ore deposits and "lead-zinc type" germanium-containing ore deposits, so industrial germanium mainly comes from the by-products of lead-zinc ore deposits and rich germanium coal.At present, the global reserves of germanium are only 8,600 tons, mainly distributed in China, the United States, and Russia. The United States has a reserve of 3,870 tons, accounting for 45% of the global content, followed by China, which accounts for 41% of the global total. The germanium-bearing ore deposits in the United States are mainly located in Alaska, Tennessee, and Washington, with lead-zinc ore deposits being the main type; China's germanium-bearing ore deposits are mainly in Inner Mongolia and Yunnan, found in both lead-zinc ore deposits and coal mines; Russia's germanium-bearing ore deposits are mainly distributed in the Far East and Siberia, with coal mines being the main type.

Based on the characteristics of germanium, three main applications have been developed: First, germanium has high infrared refraction, a wide infrared transmission band range, low absorption coefficient, low dispersion rate, and is easy to process and corrosion-resistant, making it very suitable for making germanium single crystals for infrared optical lenses and infrared optical windows.

Secondly, germanium-doped optical fibers have the advantages of large capacity, low light loss, low dispersion, long transmission distance, and are not affected by environmental interference. GeCl4, as an important dopant for making optical fiber preforms, can increase the refractive index of the core, extend the transmission light to a longer wavelength area, greatly improve the transmission efficiency of optical fibers, and reduce energy consumption.

Finally, germanium can also be used to make germanium substrate gallium arsenide solar cells. These batteries have high efficiency, high voltage, good temperature resistance, and an energy conversion rate as high as 50%, far exceeding traditional polycrystalline silicon (17%-19%) and thin-film batteries (6%-13%), and are widely used in space photovoltaics and terrestrial photovoltaic fields.

As mentioned earlier, unlike gallium, China's germanium reserves do not have an overwhelming advantage. The United States has the world's largest proven germanium reserves, but its production is far behind China. The United States began to import a large amount of germanium ore in 2013, basically giving up the mining of crude germanium and only being responsible for refining and processing.

Many people think that this is the United States protecting its strategic resources, but in fact, it is not.

Although the United States is the world's largest holder of germanium reserves, its germanium resources are mainly associated with lead-zinc ore deposits. The production of germanium depends on the output of lead-zinc ore. To increase the production capacity of germanium ore, it is necessary to massively mine lead-zinc ore. Lead and zinc, as heavy metals, cause a lot of pollution during mining, and a sudden increase in production capacity may also cause pollution to groundwater.

China's germanium mainly comes from germanium-bearing lignite and lead-zinc ore, concentrated in Yunnan and Inner Mongolia, among other places, with lignite accounting for most of the proven reserves. Both in terms of mining difficulty and environmental pollution, it is less than that of lead-zinc ore, which is also one of the main reasons why China can export a large amount of germanium ore.

The situation of germanium is not much more optimistic than that of gallium. Once China, as the largest exporter, starts to control exports, countries and regions with high consumption of germanium such as the United States and Japan will also be greatly impacted, and it is impossible to establish a suitable supply channel in a short period of time.

More importantly, as the country with the fastest development of industries such as semiconductors, communications, and photovoltaics, China's demand and consumption of these two rare metals, gallium and germanium, are not low. After years of mining, domestic bauxite and germanium-bearing lignite have shown signs of depletion. Appropriately contracting exports can also help domestic enterprises adapt to the future low-grade raw materials, thereby interfering with and promoting the development of more cost-effective metal extraction processes.Export controls on gallium and germanium, from another perspective, are also a means of promoting the industry from the primary to the high-end level, transforming resource advantages into industrial advantages.

Deglobalization and Re-globalization

In June of this year, Professor Wei Shaojun from Tsinghua University delivered a speech titled "The Re-globalization of the Semiconductor Industry" at an integrated circuit forum, in which he revealed a lot of data about domestic semiconductors. It is worth noting that although the value share of domestic chips has risen from 13% in 2013 to 41.4% in 2022, the self-sufficiency rate of semiconductors, a key goal of the "Made in China 2025" initiative, will still not reach 70% by 2025.

He emphasized that the accelerated growth of China's semiconductor manufacturing industry over the past decade has been mainly driven by wafer factories operated by foreign companies in China. Since 2016, the average compound annual growth rate (CAGR) of semiconductor companies owned by domestic Chinese investors has been 14.7%. However, the compound annual growth rate of non-mainland Chinese wafer manufacturing enterprises from Taiwan, South Korea, and other places is even higher, reaching 30%. This not only doubles the expansion speed of China's semiconductor industry but also highlights the continuous dependence of China's semiconductor manufacturing industry on external manufacturers.

It can be said that the domestic semiconductor industry has benefited from the development of globalization, playing an important role in the global semiconductor industry after the arrival of the new century. Investment and demand from all over the world have enabled domestic semiconductor companies to take advantage of the favorable situation, completing the transformation from nothing to something, and from something to abundance.

However, domestic semiconductors, both success and failure, are due to globalization. When the international situation changes and the COVID-19 pandemic comes, the process of semiconductor globalization is also interrupted, and the supply chain becomes fragmented. Under such a deglobalization background, the domestic semiconductor manufacturing industry, which is highly dependent on external manufacturers, will naturally be greatly impacted.

Now, the semiconductor supply chains of major countries and regions have started on a path of deglobalization: The United States has introduced the "Chips Act," and many companies, including Intel, Samsung, TSMC, GlobalFoundries, and Texas Instruments, are building new wafer factories in the United States; Japan is actively attracting major semiconductor companies such as TSMC and Micron, while promoting cooperation with IBM and Rapidus to develop 2nm process technology; Europe has also introduced corresponding chip acts, aiming to double the current 10% global semiconductor market share before 2030...

At the same time, these countries have successively introduced restrictions on China's semiconductors, ranging from the United States to Japan, from chips to equipment, all of which have been included in the scope of control, and domestic semiconductor companies have a lot of skills but are difficult to display.

It is no wonder that TSMC founder Zhang Zhongmou reiterated the view of "globalization is dead" in several interviews, saying that various control and entity list practices have led to the death of globalization and free trade. He also believes that the "forking" of the global supply chain and the rise of deglobalization have led to a significant increase in costs. In addition to raising the price of chips, it has also reduced the popularity of chips.

Under such circumstances, domestic semiconductors cannot close their doors to build their own cars. They must, as Professor Wei said in his speech, resolutely take the path of re-globalization, expand openness, and let more foreign capital come in to jointly develop semiconductors.But re-globalization is not a matter of simply relying on a vast market and abundant human resources to rest easy. The real challenge of re-globalization lies in how to attract and retain foreign enterprises under the interference of geopolitical factors, while also addressing the concerns of domestic enterprises in terms of technology, equipment, and materials.

Markets and raw materials are not only domestic advantages but also a countermeasure for re-globalization when necessary.

In 2022, the global gallium market reached a scale of 20.46 billion yuan (RMB), with the Chinese market accounting for 7.77 billion yuan. The global germanium market is relatively smaller, with only 16.15 billion yuan in 2022. In the segmented semiconductor field, the scale will be even smaller, and indeed, they cannot be compared with the semiconductor market that often exceeds hundreds of billions of dollars.

However, they can indeed drive a market worth hundreds of billions of dollars. The reason is not their importance but a habitual mindset of globalization. The United States and Japan have enjoyed low-priced Chinese raw materials for decades, which is one of the benefits of globalization. Similarly, the popularity of American CPUs, DRAMs, and Japanese NAND, CMOS in China is also an influence of globalization.

"A single move affects the whole body" is the best summary of globalization. As long as a country is enjoying the convenience of globalization, it cannot truly stand aloof. Whether it is anti-globalization or de-globalization, it is just using its own influence in globalization, using the means of globalization, to achieve non-globalization goals. In this process, it is more likely to be affected by external factors.

Looking at the world, the soil for re-globalization is everywhere, while anti-globalization is cultivated in a greenhouse. Who has a more robust future is already self-evident.

Where is there a semiconductor industry that can truly jump out of the three realms and not be in the five elements?