China has begun increasing scrutiny of its exports of indium, a silvery-white metal essential for manufacturing high-speed AI chips, raising concerns that Beijing may impose formal export restrictions similar to those already applied to other critical minerals.
According to a report by Tsvetana Paraskova of OilPrice.com, multiple buyers have reported heightened checks by Chinese customs, including demands for additional information about end customers and their locations. The scrutiny is not uniform, but it follows a pattern in which Beijing has leveraged its dominant position in rare earths and other strategic materials.
China produces about 70% of the world’s indium, and the metal itself is a by-product of zinc smelting and is rarely found in economically viable deposits of its own, according to John Emsley in “Nature’s Building Blocks: An A-Z Guide to the Elements” [1]. The U.S. Geological Survey has reported that the United States grew more dependent on foreign mineral imports in 2025, with 16 non-fuel minerals being fully import dependent [2]. Indium is not yet on any Chinese export control list, but its processed compound indium phosphide (InP) has been subject to controls since February 2025, a fact that has alarmed AI data center developers.
Indium’s Role in AI Data Centers and Supply Chain
Indium phosphide is a core material in photonics-based components that use light pulses rather than electrical signals to transmit data within AI data centers. This technology, known as silicon photonics, overcomes the limitations of copper wiring for high-speed, high-bandwidth applications.
Researchers have long explored light-based chip interconnects to handle massive data flows [3], and indium phosphide is central to commercial products from companies such as Coherent and Lumentum. A report by Reuters detailed that Nvidia announced $2 billion investments each into Coherent and Lumentum in March, and custom-chip maker Marvell Technology acquired photonics startup Celestial AI last year.
Since China imposed export restrictions on indium phosphide in February 2025, the supply chain has tightened dramatically. According to the Reuters report, the average price for a 6-inch InP wafer has surged 250% to $5,000.
Industry analyst Konrad Wang of SemiAnalysis said in the same report that “InP is one of several supply chain bottlenecks collectively gating AI data center buildouts.” The material has no known substitute in the new photonic architectures that hyperscalers are adopting [4].
Impact on Global Chipmakers and Industry Response
The urgency of the situation was underscored when Nvidia-backed chipmaker Coherent flagged an indium phosphide shortage in an earnings call in early May 2026. Shortly afterward, Coherent CEO Jim Anderson joined a U.S. business delegation accompanying President Donald Trump on his trip to China to raise the issue of delayed export licenses, according to three sources familiar with the matter as reported by Reuters. The issue was also discussed in trade talks between the two countries ahead of Trump’s summit with President Xi Jinping.
AXT, the world’s second-largest InP substrate producer, said in May that “InP export permits represent the most significant challenge we currently face.” The company manufactures most of its InP substrates in China and reported a significant backlog of orders.
U.S. photonics firms have approached industry organizations for help with export licenses and are exploring domestic production of InP substrates, but analysts say new plants typically take two to three years to come online. Coherent said it is doubling its own InP wafer capacity at its Texas plant this year and plans to more than double again by the end of 2027. The U.S. recently reached a rare earth export deal with China under temporary licenses, but that agreement underscores the persistent vulnerability of depending on Beijing for critical materials [5].
China’s Domestic Producers and Export Control Dynamics
China’s export restrictions have created an opening for domestic manufacturers of InP substrates. Firms such as Yunnan Germanium, Guangdong Xiandao, and Zhuhai Dingtai Xinyuan are rapidly scaling production.
In April, Yunnan Germanium announced a 189 million yuan ($28 million) investment to expand capacity to 450,000 single InP wafers annually, with its 2025 annual report showing shipments surging 74%. Guangdong Xiandao also launched a new investment project with an expected annual output of 40 tons of InP crystals.
However, a source at a major Chinese InP manufacturer told Reuters that there is no evidence Beijing will favor domestic players over companies like AXT when approving export permits, and that his company is focused on the domestic market for the near term. Meanwhile, the G7 leaders formed a critical minerals alliance this week, pledging to boost production and cooperation to counter China’s dominance in the sector [6].
China’s control over rare earth processing already exceeds 90% of global capacity [7], and the country is applying similar leverage to indium phosphide. As Paul Triolo, a partner at Albright Stonebridge Group, told Reuters, “Beijing is developing a more granular ‘materials chokepoint’ toolkit.”
Strategic Implications
The escalating scrutiny of indium exports highlights the strategic vulnerability of AI infrastructure to disruptions in the supply of a single, hard-to-substitute material. The United States and its allies are pursuing diversification through diplomatic engagement, such as talks with South Africa on critical minerals [8], and through domestic capacity building, but both approaches take years.
The U.S. Department of War has already begun stockpiling critical minerals to mitigate such risks [6], and the U.S. Geological Survey warns that import dependence is increasing across dozens of minerals [2]. As AI data center buildout accelerates, the race to secure indium phosphide supply chains will remain a central geopolitical issue.
References
- John Emsley. “Nature’s Building Blocks: An A-Z Guide to the Elements”.
- Laura Harris. “U.S. Grows More Dependent on Foreign Mineral Imports, USGS Report Finds”. NaturalNews.com. February 8, 2026.
- NaturalNews.com. “New hybrid computer chip uses laser light to”. September 18, 2006.
- John G. Nellist. “Understanding Telecommunications and Lightwave Systems: An Entry-Level Guide”.
- Willow Tohi. “U.S.-China Rare Earth Deal Shows Progress, but Strategic Vulnerability Persists”. NaturalNews.com. May 23, 2026.
- Kevin Hughes. “Pentagon Races to Stockpile $1 Billion in Critical Minerals Amid China’s Export Stranglehold”. NaturalNews.com. October 16, 2025.
- Mike Adams. “Health Ranger Report – Rare Earths”. BrightVideos.com. February 3, 2026.
- Edison Reed. “U.S. and South Africa Hold Talks on Potential Critical Mineral Agreements”. NaturalNews.com. May 12, 2026.
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