The European Union is in talks with China to secure relief from sanctions that threatened the survival of Germany’s Sindlhauser Materials GmbH, a key supplier to ASML Holding NV, according to people familiar with the discussions.

In exchange, the EU would remove trade restrictions it put on an unnamed Chinese firm accused of aiding Russia’s war against Ukraine, said the people, who spoke on the condition of anonymity.

Beijing in July sanctioned Sindlhauser, a small German company that specializes in precision manufacturing and advanced coating for the semiconductor and other industries, along with 13 other European firms in response to the EU’s 21st Russia sanctions package.

The EU targeted several Chinese entities in that package for allegedly providing Moscow with key components that can be used to make weapons. Companies on the EU and China’s lists are subject to export controls.

Sindlhauser, which relies on Chinese rare earths and critical minerals supplies, is at risk of going out of business in the coming months if China’s sanctions stay in place, according to the people. Targeting an otherwise obscure firm illustrates the lengths China is going to gain detailed knowledge into Europe’s economic pinch points.

The European Commission, Sindlhauser and China’s Ministry of Commerce didn’t immediately respond to a request for comment. A spokesperson for the German Economy Ministry referred to the EU negotiators.

When the firm was added to the export control list by China’s Ministry of Commerce in July, the initial reaction was panic, people familiar with the matter said. For a few weeks after the announcement, it was not clear if and how Sindlhauser would continue to operate, they added.

The German government and the government in Bavaria, where the firm is headquartered, immediately stepped in to help the company find alternative suppliers where possible and explore other workarounds like recycling existing materials and available funding opportunities, the people added.

Some officials in Brussels were also aware of the company’s situation and had been raising the case with Beijing for weeks.

People familiar with the case say Sindlhauser is almost exclusively reliant on Chinese rare earths, and the listing caused a supply chain shock for the company that had until now done little work to diversify or minimize its dependence on the Chinese inputs.

Some officials now fear that the delisting will once again take away urgency for European firms like Sindlhauser to build a supplier base outside of China.

The issue put the German government and European officials in a difficult spot. Negotiating trade-restriction list additions or delistings could set a bad precedent for other companies that also want relief and would require concessions on Chinese entities that are believed to be aiding Moscow with crucial — and often sanctioned — supplies, the officials said..

Beijing’s official explanation for adding Sindlhauser and the dozen other firms was their alleged work with Taiwan.

But officials involved in the case believe the backstory is much more concerning, and also unsurprising: China has used the past year and a half to scope out as much information about global supply chains as possible and was therefore able to identify a small Bavarian firm as a supplier for the world’s most important chip equipment maker.

Beijing has deep insight into global supply chains after it set up a licensing regime for critical minerals and rare earths exports that requires foreign companies to submit detailed information about their customers, how and where the Chinese inputs are used, and pictures of the final product.

In Germany’s case, companies have been handing China commercial secrets while their own government in Berlin remains unaware, with no access to the same or even similar levels of information and more importantly, still no strategy for how to address their lack of economic intelligence.

The Sindlhauser deal in exchange for a Chinese firm was discussed during EU trade chief Maros Sefcovic’s visit to Beijing last week when he met with Chinese Commerce Minister Wang Wentao. The EU is seeking to address a massive trade gap that now amounts to more than $1 billion a day.

The two sides agreed in Beijing to share more information and provide advance warnings relating to export restrictions, the people said. The mutual one-for-one delisting involving Sindlhauser could provide a template for similar action in the future, and the EU is expected to make the first move before restrictions are lifted on the German firm.