BEIJING/SHANGHAI (Reuters) -China's export controls on metals used in semiconductors are "just a start", an influential Chinese trade policy adviser said on Wednesday, as Beijing ramps up a tech fight with Washington days before a visit from U.S. Treasury Secretary Janet Yellen.
Shares in some Chinese metals companies rallied for a second session as investors bet that higher prices for gallium and germanium, which Beijing's export restrictions target, could boost revenues.
Germanium is used in high-speed computer chips, plastics and in military applications such as night-vision devices, as well as satellite imagery sensors. Gallium is used in radar and radio communication devices, satellites and LEDs.
China's abrupt announcement of controls from Aug. 1 on exports of some gallium and germanium products, also used in electric vehicles (EVs) and fibre optic cables, has sent companies scrambling to secure supplies and bumped up prices.
On Wednesday, former Vice Commerce Minister Wei Jianguo told the China Daily newspaper that countries should brace for more should they continue to pressure China, describing the controls as a "well-thought-out heavy punch" and "just a start".
"If restrictions targeting China's high-technology sector continue then countermeasures will escalate," added Wei, vice commerce minister 2003-2008 and now vice chairman of China Center for International Economic Exchanges, a state-backed think tank.
Announced on the eve of U.S. Independence Day and just before Yellen visits Beijing from Thursday, analysts said the controls were clearly timed to send a message to the Biden administration, which has been targeting China's chip sector and pushing allies such as Japan and the Netherlands to follow suit.
China's move has also raised concerns that restrictions on rare earth exports could follow, with analysts pointing to a curb on shipments imposed 12 years ago in a dispute with Japan.
China is the world's biggest producer of rare earths, a group of metals used in EVs and military equipment.
Analysts have described Monday's move as China's second - and bigger - countermeasure in the long-running U.S.-China tech fight, coming after it banned some key domestic industries from purchasing from U.S. memory chipmaker Micron in May.
The Global Times state media tabloid, in a separate editorial published late on Tuesday, said it was a "practical way" of telling the United States and its allies that their efforts to stop China procuring more advanced technology was a "miscalculation".
The Chinese commerce ministry did not respond to a request for further comment.
Asked about the metals export curbs, Chinese foreign ministry spokesman Wang Wenbin said on Wednesday the government's actions were reasonable and lawful. He told a regular press briefing that some European Union states also curb exports of some related goods.
"Our action is not targeted at any specific country," Wang said.
Some larger chip manufacturers view China's export controls on gallium as more of a warning shot about what economic pain the country could inflict.
Others have warned in the past that if China really wanted to hit global automakers it could, for example, control exports of graphite.
China produces 61% of global natural graphite and 98% of the final processed material to make EV battery anodes, according to Benchmark Mineral Intelligence.
A source at a major western chip maker, who spoke on condition of anonymity, said China's gallium move seems more like a "message that they can hit back rather than intending a real punch".
Chipmaker NXP Semiconductors said it was examining how the measures will affect its business.
Concerns about tightening supplies hurt some companies' shares, including Swiss sensor maker AMS Osram.
Shares in Teck Resources, North America's biggest germanium producer, were boosted by expectations of higher demand while rare earth miner MP Materials also rose.
Producers have already begun responding to the news.
Democratic Republic of Congo state miner Gecamines said its new plant opening in September could help fill the gap in germanium production, while Russia said it was ready to boost output to meet domestic demand.
Belgium's Umicore said it was confident it could maintain supplies to customers.
Washington is considering new restrictions on microchip shipments to China, following a series of curbs in recent years.
The United States and the Netherlands are also expected to further restrict sales of chipmaking equipment to China, part of efforts to prevent their technology from being used by the Chinese military.
A day after China unveiled the curbs, President Xi Jinping called on nations to spurn decoupling and avoid severing supply chains in a virtual address to leaders attending the Shanghai Cooperation Organisation summit, state media reported.
Shares in Chinese metals companies such as Yunnan Lincang Xinyuan Germanium Industry Co and Yunnan Chihong Zinc & Germanium Co surged for a second session on Wednesday, with local media reporting that a rise in germanium prices would boost revenue growth for the firms.
Gallium at 99.99% purity in China was trading at 1,775 yuan ($245) a kg on Tuesday, unchanged from the day before, but up 6% week-on-week and 4% year-on-year, respectively, Shanghai Metal Exchange Market data on Refinitiv Eikon showed. It was, however, 46% lower from the same period a year earlier.
China's germanium ingot was priced at 9,150 yuan per kg on Tuesday, also flat on the day and on the week, Refinitiv data showed. It was down 4% month-on-month and up 4.6% year-on-year, respectively.
($1 = 7.2447 Chinese yuan)
(Reporting by Beijing newsroom and Brenda Goh; Additional reporting by Amy Lv and Yew Lun Tian in Beijing and Nick Carey in London; Editing by Muralikumar Anantharaman, Jacqueline Wong and Catherine Evans)