Shares of Chinese artificial intelligence model developers fell sharply after reports that Chinese authorities had begun investigating data security issues at DeepSeek and Moonshot AI.
Bloomberg, citing U.S. technology outlet The Information, reported on the 23rd that the Cyberspace Administration of China (CAC) had sent officials to the two companies to interview employees. People familiar with the matter told The Information that the inquiry aims to determine whether security violations occurred at DeepSeek and Moonshot AI and how serious they were.
The Information reported that the Chinese government is concerned the two companies may have violated the country's data security law by routing user requests through Claude, the AI model developed by U.S.-based Anthropic, potentially exposing sensitive information from the Chinese military, police and businesses to the U.S. side.
Chinese AI stocks sold off after the news. Zhipu AI and MiniMax fell 12% and 6.8%, respectively, on the Hong Kong exchange. Alibaba Group also dropped nearly 5% in the wake of the report. Other Chinese technology companies with their own AI models declined as well, with Xiaomi closing down about 3.8% and Tencent 2.9%.
Leonid Mironov, a portfolio manager at Gavekal Capital, told Bloomberg that "investors are afraid Beijing will step up its scrutiny of the AI industry." He added that the specific scope of regulation remains difficult to gauge, which has weakened market sentiment and risks slowing the pace of AI model development in China.
State Firms Also Face Full Audit of Broadcom Equipment
The moves align with Beijing's broader policy of reducing reliance on foreign AI infrastructure. The Chinese government has been expanding the use of domestic semiconductors and AI through policy measures to nurture homegrown AI companies and cut dependence on overseas suppliers.
The Financial Times reported on the 22nd, citing multiple sources, that the State-owned Assets Supervision and Administration Commission (SASAC) under China's State Council has spent recent weeks surveying the number of Broadcom switches installed in state-owned data centers. Switches are core networking equipment used to transfer large volumes of data quickly within data centers.
One source said the survey is part of China's domestic chip policy. Depending on the findings, SASAC could issue informal guidance directing state-owned data centers to reduce their use of Broadcom switches. The FT said data center switches represent a market with the potential to generate billions of dollars in revenue as demand for AI training from Chinese companies grows.
U.S.-based Nvidia once sold high-performance switches in China alongside Broadcom and Huawei, but its products are now effectively blocked from Chinese state-owned data centers. Broadcom products, by contrast, remain widely in use. One estimate put the penetration rate of Broadcom switches at state-owned Chinese enterprises as high as 90%.
SASAC is also examining whether Broadcom used its market power to bundle other products or pressure customers into ordering tens of thousands of switches at once. Chinese networking equipment makers such as H3C Technologies and Ruijie Networks are seen as having faced constraints in sourcing components from domestic suppliers including Huawei.
Still, an official at a data center rack manufacturer said potential restrictions on Broadcom switches would not apply to data centers run by private companies such as ByteDance and Alibaba. Under a strategy of nationalizing the supply chain, existing equipment would not be ripped out, the official said.
