Germany is in talks to limit the export of chemicals to China, which are used in semiconductor manufacturing. This measure is a part of a package of measures that Chancellor Olaf Scholz's government is discussing to cut off China's access to goods and services required for the production of advanced semiconductors. The proposal, if implemented, would restrict German companies like Merck KGaA and BASF SE from selling some of their semiconductor chemicals to China. The chemicals provided by these companies are critical to the production of semiconductors globally. The move could limit China's ability to advance its own semiconductor industry.
Germany's economy ministry declined to comment on this. The shares of BASF fell after the news of the proposal broke, while Merck KGaA's shares remained unchanged. However, officials in Berlin are aware that any such decision could harm business ties with China, which has become Germany's largest trading partner.
Semiconductors are a crucial part of the global supply chain and are found in everything from cars and smartphones to refrigerators. The materials and machines needed for their production are often difficult to obtain. Choking off an already limited supply line could thwart China's ability to advance its own industry.
The idea of imposing export controls on chip chemicals is part of a broader plan to strengthen Germany's economic resilience and reduce one-sided dependencies on China. The move could put the goods and services on Germany's national dual-use list, which restricts trade in goods that can be used in both civilian and military contexts.
Germany is not the only country considering limiting exports of chip technology to China. The Netherlands agreed to join the US effort to limit exports of chip technology to China last month. The new measures will restrict the exports of ASML's immersion DUV lithography products. The restrictions will be published before the summer.
While Germany does not have advanced chip-making technologies, Merck and BASF provide firms around the world with critical chemicals required for making semiconductors. Merck's products or services are found in almost every single chip in the world, while BASF is a market leader in Europe and Asia. However, even with a "whole nation" system to encourage state-owned enterprises, research institutes, and private companies to create technologies that can replace foreign imports, China's chip industry is still lagging years behind TSMC and Samsung Electronics Co.
As Scholz considers these restrictions, he is also seeking to maintain open relations with Beijing. He invited Chinese Premier Li Qiang for talks in Berlin on June 20 to ease tensions between Europe and the government in Beijing. In the talks, Scholz wants to gauge China's readiness to be a constructive partner on challenges including promoting global peace and tackling climate change while setting out red lines to any changes to the status quo in Taiwan.
