Shares of Zhongji Innolight and Eoptolink, two leading Chinese manufacturers of optical equipment critical to data center operations, declined sharply following reports that the U.S. Federal Communications Commission (FCC) is considering banning imports of their products from American data centers. Both companies have emerged as significant players in the global artificial intelligence (AI) hardware supply chain, supplying technology essential for the rapid data transfer required in AI applications.
On the day of the report, Innolight's shares fell 8.6 percent and Eoptolink's dropped 6.9 percent on the mainland Chinese stock market. The wider CSI 300 telecommunications services index initially declined as much as 9 percent before settling around 4 percent lower, reflecting broader concerns over the potential impact of U.S. trade restrictions on Chinese tech firms.
Zhongji Innolight and Eoptolink have experienced dramatic growth in 2023, with their shares rising approximately 4,500 percent since the beginning of the year. Their rapid expansion has been fuelled primarily by overseas demand, particularly from major American technology companies such as Amazon and Alphabet, which rely on the companies’ optical transceivers and other components for data centers supporting AI services. Innolight reported net profits of 10.8 billion yuan (about $1.6 billion) last year, up from 2.2 billion yuan in 2023. Eoptolink’s profits rose from 688 million yuan to 9.5 billion yuan over the same period.
These firms derive the vast majority of their revenue from outside China, with more than 90 percent of Innolight’s 38.2 billion yuan ($5.6 billion) revenue and 96 percent of Eoptolink's coming from international markets. Domestically, customers include companies such as Huawei and Alibaba, underpinning Beijing’s broader strategy to boost self-reliance in AI technology.
Analysts suggest that U.S. restrictions may accelerate China’s pursuit of technological independence. Kenny Ng, a strategist at Everbright Securities International, noted that continuous targeted measures by Washington aimed at cutting off access to critical AI computing power and data center hardware could strengthen Beijing’s resolve to advance its local innovation efforts. “Continuous and targeted US restrictions on AI computing power and underlying data centre hardware will further compel China to accelerate the push for self-reliance and autonomy in key technologies,” Ng said.
The FCC has not publicly commented on the matter. The proposed restrictions form part of a broader trend as the United States seeks to limit China’s access to advanced technologies that are seen as crucial to AI development and national security.