Grand strategic competitions in peacetime seldom have easy-to-read scoreboards. The players want different things, and they spin narratives constantly, making it hard to tell who is in the lead, by how much, and how much time is left to play.
Over the past year, however, developments in China’s financial markets have made the U.S.-China technology competition easier to score. Team America’s policy of restricting Chinese companies’ access to U.S. technology and markets finally seems to be paying off. Follow-through and enforcement will determine whether this advantage becomes an enduring trend.
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Recent events in China’s markets suggest that U.S. policy is working. CXMT, China’s largest domestic memory-chip manufacturer (DRAM), held a successful IPO in July, rapidly making it the country’s most valuable public company. In September, Shanghai Enflame, an AI chip manufacturer, saw its shares surge over 200 percent in its first day of trading. The successful IPOs of both companies show that Beijing’s markets reward domestic substitution—which means that Chinese capital markets are sensitive to America’s export restrictions.
Even more telling, however, was the lackluster IPO of one of the world’s largest optical transceiver makers, Zhongji Innolight, which fizzled in Hong Kong in July. This company’s lesser IPO pop shows that Chinese markets are hypersensitive to restrictions on access to the U.S. market.
Innolight is a leader in optical modules, which are critical to scaling data and AI infrastructure and moving bits more efficiently between server racks. By revenue, Innolight has been the world’s leader in interconnect modules for the past five years. Its customers include the biggest names among America’s “hyperscalers”—the companies building the massive datacenters underpinning the AI boom. Yet while CXMT and others were beating expectations with their public market launches, Innolight stalled in Hong Kong and saw its share price drop in Shenzhen. That underperformance has continued since the summer.
Chinese press coverage mostly blamed Innolight’s weak launch on a downturn in investor sentiment toward AI, but Enflame’s AI-dependent business model and strong performance suggest there is more to the story. A major part of that story is the U.S. tech restrictions that have put Innolight’s U.S.-linked revenues at risk.
The U.S. Department of War added Innolight to its list of Chinese military companies in June 2026. As wonky as it may sound, markets appear finally to be noticing the real-world impact of Section 1260H of the 2021 National Defense Authorization Act. That owes much to the Section 805 update in the 2024 NDAA, which gave the Department of War’s listing mechanism teeth. In June 2027, Section 805 will take effect, barring the U.S. defense industrial base—meaning both the Department of War and its contractors—from doing business with designated Chinese military companies.
The Pentagon’s clear signal matters, but upcoming action by the Federal Communications Commission will turn it into an enduring market reality. Under the leadership of Chairman Brendan Carr, who has built a reputation for treating national security as a core part of the agency’s job, the FCC is reportedly preparing to cut new Chinese optical transceivers out of U.S. supply. This move would reach far beyond defense contracting, into the fast-growing commercial networks and data centers where this equipment lives. The FCC has both the authority to take this step and the right instincts. What it needs now is speed and initiative.
Congress has joined the Pentagon and the FCC in taking an interest in Chinese optical transceivers. A bipartisan group of Senate offices recently proposed the Securing National Security Systems from Chinese Optical Transceivers Act of 2026. This bill makes it clear that optical transceivers are an important front in the tech competition with China and hold a distinctive position in the compute value chain. They underpin superintelligence ambitions and are central to supply-chain and operational security across critical infrastructure. As Pennsylvania Senator Dave McCormick explained: “This bipartisan bill will help secure our networks and give American manufacturers—including the incredible companies and workers we have right here in Pennsylvania—the opportunity to step up, build more of this technology at home, and compete.”
The confluence of actions from the Pentagon, FCC, and Congress to protect the optical transceiver segment may present a rare case of America getting onto the field in time and with the right playbook. Now, diligent follow-through is needed to make sure those actions register on the scoreboards that matter—both in terms of America’s ramping up of trusted production and in terms of the cost of capital flowing through exchanges in Shenzhen, Shanghai, and Hong Kong.