Former Vice Commerce Minister Wei Jianguo stated that China's export controls on gallium and germanium are just the beginning and warned of further escalations if pressure on China's high-technology sector continues. These metals play a vital role in various applications, including high-speed computer chips, military devices like night-vision equipment and radar systems, satellite imagery sensors, and the production of LEDs.

As news of the export controls broke, shares of Chinese metals companies experienced a boost for the second consecutive trading session. Investors anticipate that the restrictions on gallium and germanium exports will lead to higher prices for these metals, subsequently generating increased revenues for domestic companies. It is worth mentioning that these metals are not only essential for semiconductor manufacturing but also find applications in electric vehicles (EVs) and fibre optic cables.

The abrupt announcement of export controls, which are set to take effect from 1 August, has sent shockwaves through the industry, forcing companies to scramble and secure alternative supply sources. Consequently, scarcity and heightened demand have led to price hikes in the affected metals. Recognising the potential implications, former Vice Commerce Minister Wei Jianguo emphasised that if countries continue to exert pressure on China's high-technology sector, they should be prepared for further retaliatory measures.

Analysts believe that China's timing of this announcement, deliberately coinciding with the eve of US Independence Day and ahead of Janet Yellen's visit, is seen as a calculated move to send a clear message to the Biden administration. The USA has been actively targeting China's chip sector and rallying its allies, such as Japan and the Netherlands, to adopt similar measures. Analysts interpret China's export controls as a direct response aimed at countering these efforts.

Furthermore, there are concerns that China's move could extend to include restrictions on the export of rare earth metals. These metals, of which China is the world's largest producer, are vital components in producing EVs and military equipment. Observers draw attention to a previous incident 12 years ago when China imposed restrictions on rare earth exports during a dispute with Japan. The possibility of such measures being implemented again raises additional uncertainties for industries reliant on these critical resources.

While some larger chip manufacturers view China's export controls on gallium as a warning shot rather than a substantial blow, industry insiders have previously cautioned that China possesses the capability to significantly impact global automakers by controlling exports of other critical materials such as graphite. China currently dominates global natural graphite production, accounting for 61% of the market and 98% of the final processed material used for EV battery anodes.

As tensions persist, the USA is considering additional restrictions on high-tech microchip shipments to China. The USA and the Netherlands are also expected to further limit sales of chipmaking equipment to China.