Chinese optical stocks experienced a sharp selloff following reports that the Trump administration is drafting a comprehensive ban on Chinese-made data centre devices. According to The Economic Times, the CSI300 Telecommunication Services Index dropped as much as 9% in early trade, led by heavy losses in export-oriented optical module manufacturers. The negative sentiment was largely confined to optical module makers, while shares of domestic Chinese chipmakers advanced, highlighting a divergence within the broader AI hardware segment. As reported by Reuters, the proposed restrictions added to pressure on China's AI hardware sector, which has already witnessed heightened volatility in recent weeks. Despite the sharp market reaction, some analysts suggested investors may have overestimated the likelihood of the measure being implemented.
The Trump administration is drafting a comprehensive ban on Chinese-made data centre devices, extending its campaign to wall off American AI infrastructure from Chinese technology. According to reports from Reuters, the latest move targets networking switches, servers, storage, and management chips - the connective tissue of data centres that could carry hidden paths back to foreign vendors. This represents a significant escalation from the previous focus on optical transceivers, as the administration now seeks to remove any Chinese component from the physical core of the AI economy. The draft extends a campaign that has been widening fast, following recent bans on new Chinese humanoid robots and power inverters, both cast as risks to critical infrastructure. The FCC hopes to publish the measure this year, with restrictions taking effect after publication according to sources familiar with the matter.
A U.S. ban on Chinese data centre devices would likely hit Zhongji Innolight, one of the biggest global sellers of transceivers, which was added to the Pentagon's list of alleged Chinese military-backed companies in June. According to The Economic Times, Innolight fell around 10% in both its Shanghai and Hong Kong-listed shares, with the company generating 62% of its first-quarter revenue from the U.S. market and having earlier warned that escalating trade tensions could significantly hurt its financial performance. Eoptolink Technology, which generates 96% of its revenue from overseas markets, also dropped 10%, while Suzhou TFC Optical Communications declined about 6%. As reported by Reuters, the FCC could still modify or shelve the restriction, but the proposed move reflects Washington's broader strategy of tightening restrictions on China's access to advanced technology and the U.S. market.
The proposed FCC import ban, expected in 2026, has exposed the heavy dependence of North American optical-communications companies on Chinese suppliers and manufacturing capacity. According to Caixin, Chinese manufacturers currently supply more than half of the world's key high-speed optical interconnects, which are critical to AI data centres. This heavy reliance creates significant supply chain vulnerabilities that could disrupt AI infrastructure development. The move aligns with the Trump administration's broader strategy to avoid another situation like Huawei, where telecom equipment was so deeply embedded in U.S. infrastructure that removal efforts were slow, expensive and incomplete. However, enforcement remains the hard part, as bans are routinely undercut by resellers, relabelled parts, and subsidiaries.
According to Jefferies, the risk of the proposed ban being enforced remained low, adding that it viewed the move as a potential negotiating tactic ahead of an expected meeting between U.S. President Donald Trump and Chinese President Xi Jinping in September. The brokerage also pointed to China's restrictions on rare earth exports, which have affected the U.S. optics industry. As reported by Reuters, analysts said Chinese companies may increasingly need to diversify their customer base and expand into alternative overseas markets to reduce reliance on the United States. The latest development underscores growing uncertainty for Chinese technology exporters as geopolitical tensions and trade restrictions continue to reshape global supply chains, with legal experts noting that the reported U.S. proposal reflects Washington's broader strategy of tightening restrictions on China's access to advanced technology.
