Germany Considers Export Limits on Semiconductor Chemicals to China, Cites Economic Exposure

Germany is considering limiting exports of chemicals used in the production of semiconductors to China, Bloomberg reports.

The move is part of a wider package of measures that Chancellor Olaf Scholz's government is discussing to cut off China's access to goods and services needed to produce advanced semiconductors.

The proposal could limit German companies such as Merck KGaA and BASF SE from selling some of their semiconductor chemicals to China.

Scholz has been adopting a more hawkish approach to Beijing as he tries to balance supporting Germany's massive economic interests in China and national security and human rights concerns.

A Shift in China-Germany Relations

This new development comes after German Foreign Minister Annalena Baerbock returned from her visit to China, warning that Beijing was becoming more of a systemic rival than a trade partner and competitor.

During her visit, Reuters reported that Baerbock condemned any attempt by China to control Taiwan, stating it would be unacceptable. Beijing has long claimed the democratic country as a Chinese province and has never ruled out the use of force to bring the island under its control.

Baerbock described parts of her trip as "more than shocking" but did not elaborate on what caused her concern. However, her statement comes amid growing international criticism of China's human rights record, its crackdown on Hong Kong's democracy movement, and concerns over its military expansion in the South China Sea.

More Limits to China's Hold of Advanced Chip Technology

Choking off an already limited supply line due to the US and allies continued chi ban could thwart China's ability to advance its industry.

According to industry experts, the Chinese semiconductor and AI sector could face a significant setback if the US imposes stricter sanctions.

This is because the US is taking measures to prevent Beijing from acquiring the latest chip-making technologies, which may cause China to fall behind by decades in these critical industries.

Bloomberg notes that the quickest and most practical way to implement such export controls would be to put the respective goods and services on Germany's national dual-use list, which restricts trade in goods that can be used in civilian and military contexts.

Such dual-use lists aim to prevent the development and proliferation of chemical, biological, and nuclear weapons and the hidden production of conventional military weapons.

Immediate Impact

The proposal has caused BASF shares to fall back to session lows, down 4.3% at 12:37 p.m. in Frankfurt. Merck KGaA was a little changed.

Scholz and Economy Minister Robert Habeck are in constant contact with European allies as well as the United States, which is pushing for a global blockade of China's access to vital technologies like semiconductors.

Talks within the ruling coalition on such export controls are still early. Officials know that any such decision could damage business ties with China, which has become Germany's largest trading partner.

Future Talks

Politico tells us that Scholz is set to host high-level government talks with key Chinese counterparts in Berlin on June 20. The focus of these talks is to advance economic and climate cooperation with China and address any tensions over Taiwan.

The bilateral government consultations will be led by Chinese Premier Li Qiang and include Scholz and other Cabinet ministers. The talks are a significant step towards improving relations between the two nations

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