Germany is in talks to limit exports of chip chemicals to China

Germany is in talks to limit exports to China of chemicals used to make semiconductors, as Berlin steps up efforts to reduce its economic exposure to the Asian country.

The proposal is part of a package of measures being discussed by Chancellor Olaf Scholz’s government that would block China’s access to goods and services needed to produce advanced semiconductors, according to what Bloomberg quoted from sources, and Al viewed it.

If implemented, the sources said, this step will limit German companies such as Merck KGaA and BASF SE from selling some semiconductor chemicals to China.

Scholz, in turn, has taken a more hard line on Beijing as Germany tries to balance support for the country’s outsized economic interests in China with national security and human rights concerns. But relations between Europe and China have been tense, especially after President Xi Jinping and Russian President Vladimir Putin declared “friendship without borders” weeks before Moscow invaded Ukraine.

A spokesman for the German Economy Ministry declined to comment.

BASF shares fell to their lowest levels in the session after the news, trading down 4.3% at 12:37 PM. in Frankfurt. And Merck KGaA has changed quite a bit.

Scholz and Economy Minister Robert Habeck are coordinating closely on the matter with European allies and the United States, which is pushing for a global ban on China’s access to key technologies, including semiconductors. Officials in Berlin said there is no pressure from Washington on this issue, but rather a strong desire to work together and close ranks on China.

Semiconductors are an essential part of the global supply chain, found in everything from cars and smartphones to refrigerators, and the materials and machinery needed to produce them are often hard to come by. Choking an already limited supply line could stymie China’s ability to develop its own industry.

The sources said that talks within the ruling coalition over such export controls are still in their early stages and officials understand that any such decision could harm working relations with China, which has become Germany’s largest trading partner.

Dual use goods

Habeck, who is also vice chancellor, has advised officials in his ministry to work on a toolkit of measures to enhance Germany’s economic resilience in certain areas and reduce unilateral dependencies on China. Part of these deliberations, people said, was the idea of ‚Äč‚Äčimposing export controls on chemical chips.

One person said that the quickest and most practical way to implement such export controls is to place the goods and services in question on Germany’s national dual-use list, adding that other methods via lists and international treaties could be time-consuming.

Export controls restrict trade in goods that can be used in both a civilian and military context. The aim of these dual-use lists is to prevent the development and proliferation of chemical, biological and nuclear weapons, as well as the covert production of conventional military weapons.

Earlier this month, German Foreign Minister Analina Berbock exchanged barbs with her Chinese counterpart Chen Gang during a visit to Beijing, saying that destabilizing Taiwan would be an “apocalyptic scenario”. Berbuck and Schultz are helping shape a new security strategy aimed at reducing dependence on China and protecting critical infrastructure from hybrid attacks.

For its part, the Netherlands agreed last month to join US efforts to limit exports of chip technology to China. The new measures will rein in exports of DUV lithography products from ASML, adding to the already existing restrictions on state-of-the-art lithography machines, which are essential to producing the world’s most advanced chips.

While Germany does not have advanced chip-making technologies, Merck and BASF supply companies around the world with the necessary chemicals needed to make semiconductors. Merck’s products or services are found in almost every chip in the world, while BASF is a market leader in Europe and Asia, home to the world’s most important chipmakers including TSMC.

Without supplies from Merck and BASF, China could face more challenges in developing advanced chip technologies and even its semiconductor manufacturing capabilities could be affected.

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