Shares of Chinese optical module makers such as Zhongji Innolight (300308.SZ) slumped on Wednesday after a Reuters report that the Trump administration was drafting a ban on U.S. imports of new models of Chinese data centre components.
The CSI300 Telecommunication Services Index (.CSI000916) tumbled as much as 9% in early trading.
Export-dependent optical module makers including Zhongji Innolight, Eoptolink Technology (300502.SZ) and Suzhou TFC Optical Communications (300349.SZ) fell sharply.
The U.S. government is working on a measure on national security grounds to bar imports of new Chinese optical transceivers, which allow data to travel over fibre-optic cables at the speed of light within data centres, Reuters reported.
The news threatens to hit already shaky confidence in China’s AI hardware stocks after a savage selloff, but some analysts say the market could be over-reacting.
"We see a low risk that this ban will materialise under Trump," Jefferies said in a note.
"We believe the move is a U.S. negotiation tactic ahead of President Xi's visit to the U.S. in September, especially given China's rare earth export controls, which affect the U.S. optics industry."
The psychological impact was evident on Wednesday as investors dumped optical module stocks even as those of domestic chipmakers surged.
Shares of Zhongji Innolight — the 10th-biggest China-listed stock by market value — shed roughly 10% in both Shanghai and Hong Kong.
The Chinese optical parts maker generated 62% of its revenue from the U.S. in the first quarter. It warned earlier this year that an escalation in Sino-U.S. trade tensions could result in a big slide in performance, or even losses.
Shares of Eoptolink Technology, which generates 96% of its sales from overseas markets, tumbled 10%. TFC Optical, also heavily reliant on foreign markets, slumped roughly 6%.
"The U.S. move is not surprising, as its policies toward China are driven by two forces: concerns over trade imbalances and efforts to contain China's technological advancement," said Zhan Kai, a partner at law firm Dacheng in Shanghai.
The U.S. is increasingly moving from blocking technology transfers to China, toward blocking Chinese investment and Chinese access to its market, he said.
"For Chinese companies, the priority is to proactively diversify their client base and target markets ... rather than just to obtain technologies."
