AXT, a US-based firm, has applied for permits following China’s restrictions on chipmaking exports

SHANGHAI, China (Reuters) – U.S. semiconductor manufacturer AXT Inc. said Monday that it will seek permits for the continued export of gallium and germanium substratum products from China after Beijing abruptly imposed an export control on metals essential to chipmaking.

California-headquartered AXT, which has manufacturing facilities in China, said its Chinese subsidiary Tongmei would immediately proceed to apply for the permits.

Morris Young, Chief Executive Officer of AXT, said: “We are actively seeking the necessary permits. We are also working to minimize potential disruptions to our customers.”

China’s Commerce Ministry said Monday that it will control the exports of eight galium products and six Germanium products starting August 1 in order to protect national security and interests.

These controls are the latest salvo of an escalating battle between Beijing and Washington over the access to high-tech chips. Washington is also considering new restrictions for the shipment to China of high-tech chip technology.

AXT reported that in the first quarter, exports of gallium arsenide (GA) and germanium substrates from China generated revenue of about $4.3million, mainly for automotive, display, and industrial applications.

In order to produce products from 5G basestations to power electronics, gallium is used as a component in compound semiconductors such as gallium nitride or gallium arsenide. Germanium is used in solar cells, infrared technology and fibre optic cables.

In a note, Jefferies analysts stated that China controlled 80% global output of these materials. They also said they viewed this as China’s second and larger countermeasure in the U.S. – China tech war after Beijing banned certain domestic sectors from buying products from U.S. Memory Chipmaker Micron in may.

Analysts said that the controls could also be a reaction to a possible U.S. tightening up of an AI chip banning.

They said that the risk of an escalation in tensions between the U.S. and China was not small.

If this action does not change the U.S. China dynamics, then more rare earth export control should be expected.

In an effort to stop their technology being used by China’s military, the United States and Netherlands will be delivering a double punch to China’s chipmakers by restricting further sales of chipmaking machinery this summer.

Caixin, a news website, reported that the top three importers of China’s gallium in 2022 were Japan, Germany, and the Netherlands. This was based on customs data. Japan, France Germany and the United States are top importers of germanium.

(Reporting and editing by Tom Hogue; Brenda Goh, reporter)