Chinese telecom equipment stocks fall as U.S. lawmakers weigh new curbs

Chinese telecom equipment stocks experienced a sharp decline on Monday following U.S. lawmakers' proposal of new measures that could widen restrictions on Chinese-made communications technology utilized in crucial U.S. systems. Hengtong Optic-Electric experienced the most significant drop at 10%, followed by Fiberhome Telecommunication Technologies and Accelink Technologies, both plummeting by 10% and 9.9%, respectively.

T&S Communications saw a 8.5% decrease, while Ruijie Networks and CIG Shanghai both fell by 8.5% and 7.2%, respectively. ZTE also suffered a 3.5% decline. The stock market's downturn was concurrent with U.S. lawmakers introducing bipartisan legislation to tighten the process of restricting technology and equipment from countries considered adversaries.

The proposed Communications and Technology Transparency Act would broaden the types of technology that can be added to the Federal Communications Commission’s Covered List and simplify the procedure for restricting such products in the U.S. The FCC’s Covered List currently includes telecommunication equipment produced or supplied by Huawei and ZTE, subject to U.S. restrictions on national security grounds.

The latest U.S. measures also encompass legislation introduced by four senators on September 25, which would prohibit Chinese-made optical transceivers from being employed in the federal government's most sensitive national-security systems. Optical transceivers play a vital role in transmitting data across high-speed fiber networks, including those supporting AI data centers.

The bill targets Chinese optical-transceiver manufacturers Eoptolink and Zhongji Innolight, according to Reuters.

Advocates of the legislation express concerns over potential supply-chain and security risks, as advanced transceivers may contain reprogrammable firmware. These measures join broader U.S. efforts to lessen dependency on Chinese telecommunications technology. In July, the FCC decided to prohibit the sale of devices containing key hardware from Chinese entities deemed national-security risks, including Huawei and ZTE, effectively closing a loophole that had allowed some products containing their components to receive U.S. authorization.

Despite the sell-off in China, the broader market witnessed a weaker performance, with the CSI 300 falling 2% and the Shanghai Composite dropping 1.5%, while the Hang Seng gained 0.7%.