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China’s Export Controls on Gallium and Germanium Rock Global Markets

In the morning, A shares began to rebound for a while, but then Hong Kong stocks suddenly plunged. From the perspective of the structure of the sell-off, Chinese large-cap bank stocks are the main force in the sell-off. Yesterday, Goldman Sachs issued dozens of pages of reports, lowering the ratings of some major Chinese banks to sell. Although there was a clarification released this morning, it may still have an impact on the entire market.

For funds that are speculating on small metals, Russia’s statement is particularly noteworthy. China has announced in accordance with the law that it will implement export controls on items related to gallium and germanium. The German foreign policy website claimed that “in the escalating economic war launched by the West against China, the latter launched the first comprehensive counterattack against the former.” Subsequently, a spokesman for the US Department of Commerce stated that the United States “resolutely” opposes China’s announcement of restrictions on the production of semiconductors and Gallium and germanium, metals needed for other electronics, imposed export controls, adding that Washington would consult with partners and allies on how to address the issue.

Russia’s response was even more meaningful. Russia is preparing to boost germanium production to meet domestic demand after China announced restrictions on exports of the metal used in chipmaking, Rostec said.

Hong Kong stock market burst

Just now, the Hang Seng Index suddenly fell sharply, and the decline quickly expanded to more than 2%, and the number of points that fell exceeded 500 points at one point.

Judging from the structure of the decline, the adjustment of Chinese bank stocks may have triggered some panic orders. This morning, the Chinese banking sector, which had been relatively stable, suddenly fell in a straight line. Heavyweight stocks such as China Merchants Bank, China Construction Bank, and Industrial and Commercial Bank of China all experienced relatively large declines.

Yesterday, it was suddenly reported in the market that Goldman Sachs downgraded ICBC, Agriculture and other major domestic banks to sell. This morning, Goldman Sachs responded that its report titled “Testing the “Impossible Trinity”” analyzed its views on the current domestic banking stocks from three perspectives. There were 12 banks involved in ratings, covering only the current Thirty percent of the 42 A-share listed banks are concentrated between large state-owned banks and some joint-stock banks. Among the above-mentioned 12 banks, Goldman Sachs rated 5 as “sell”, 4 as “buy” and 3 as neutral. The total number of buys and neutrals is 7, which is not as pessimistic as the “small composition” of “singing short” bank stocks.

CICC said in its latest report that bank valuations are expected to bottom out in the long run. Compared with peers, large state-owned banks have lower leverage, higher return on assets, higher proportion of safe assets, lower overdue rate than peers, stricter risk identification standards, and higher core tier-1 capital adequacy ratio. The implementation is expected to help the core tier-one capital adequacy ratio of major banks increase by about 1ppt.

In addition, affected by the bad news from the Federal Reserve, major stock markets in Asia-Pacific fell across the board in early trading. The Nikkei 225 Index fell 1.72% to 32,765 points; the Korean Composite Index fell 0.54% to 2,565 points; The index fell 0.09% to 11992.45 points.

America suddenly panicked

On the other hand, the technological war is also in full swing.

China has announced in accordance with the law that it will implement export controls on items related to gallium and germanium. The German foreign policy website claimed that “in the escalating economic war launched by the West against China, the latter launched the first full-scale counterattack against the former.”

The United States is even more flustered. The United States “resolutely” opposes China’s announcement of export controls on gallium and germanium needed to produce semiconductors and other electronics, a spokesman for the country’s Commerce Ministry said on Wednesday, adding that Washington would consult its partners and allies to resolve the issue.

Germanium is used in high-speed computer chips, plastics and military applications such as night vision equipment and satellite image sensors. Gallium is used in radar and radio communications equipment, satellites and LEDs.

“These actions underscore the need to diversify supply chains. The United States will work with our allies and partners to address this issue and increase the resilience of critical supply chains,” a Commerce Department spokesman said in an emailed statement.

The European Commission also expressed concern, while German Economy Minister Robert Habeck said any expansion of controls on materials such as lithium would “create problems”. According to Reuters, the Dutch Ministry of Foreign Affairs, the producer of lithography machines, stated in a statement on the same day that “the extent to which (China’s export controls) will have an impact on the European and Dutch economies will depend on how China implements it.” The Dutch side also stated that , “Given the EU’s authority in trade policy, negotiating with China on these measures is mainly up to the EU.”

It is worth mentioning the Russian response. Russia is preparing to boost germanium production to meet domestic demand after China announced restrictions on exports of the metal used in chipmaking, Rostec said.

According to the data, germanium resources in the world are scarce and highly concentrated at present. The germanium producers are mainly China, the United States, Russia and Canada. Domestically, they are mainly distributed in Yunnan, Inner Mongolia, Guangdong, Guizhou, Sichuan and other places. Among them, although the United States is the country with the largest reserves of germanium resources in the world, it has protected germanium as a national defense reserve resource since 1984, and has basically stopped mining germanium in recent years. From the perspective of germanium production, since 2013, China’s germanium production has basically maintained a global share of more than 60%, becoming an important supplier of germanium in the world.

In terms of production, China is the world’s largest producer of gallium metal. The output of primary gallium accounts for more than 90% of the world’s total output, reaching 497 tons in 2021. Only Russia retains part of its output abroad. More than 90% of primary gallium comes from bauxite, mainly concentrated in six regions: Chongqing, Yunnan, Guizhou, Henan, Guangxi, and Shanxi.

Analysts believe that if there is an alternative share in Russia, then the funds that are currently speculating on small metals should pay attention. Today, stocks involving gallium and germanium are still blocked by the daily limit.

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