Author | Jiang Xu For more financial insights | BT Finance Data Pass Full text: 2,443 words Estimated reading time: 5 minutes

In May 2026, the CEO of a Jiangsu-based fiber optics company made a statement that quickly went viral after being widely shared and screenshot:

"Previously, we only received payment after shipment. Now, buyers pay in advance before we even deliver. Demand is far from waning."

This comment came amid a surge in fiber optic prices, which soared from 32 RMB per core-kilometer last year to 240 RMB—a staggering 650% increase. Orders are now booked well into the first quarter of 2027. (Source: CCTV Finance, April 2026)

When I first encountered this news, my immediate reaction wasn't just about the rising prices of fiber optics; rather, it was a sense of déjà vu.

This scenario felt all too familiar.

1

Three Different Stories, One Shared Logic

The first story dates back to 2022.

That year, the global transformer market began experiencing unprecedented delivery delays. A U.S. power company's order with Siemens saw wait times extend from six months to two years. The cause? A sudden surge in AI data center construction outpaced the capacity of power infrastructure. (Source: Bloomberg, 2022-2023 ongoing coverage)

What went unnoticed: During this period, domestic transformer manufacturers witnessed a surge in overseas orders. Companies like TBEA and Baobian Electric secured long-term contracts from North America and the Middle East. By 2023, China's transformer exports had grown by over 30% year-on-year.

The second story harks back to around 2010.

This was the heyday of the rare earth industry. China began restricting rare earth exports, triggering global concerns about supply chokepoints. Few mentioned that in the decade prior, China's rare earth sector had endured brutal price wars, driving countless SMEs into losses and nearly collapsing the industry. Only after capacity was rationalized, prices bottomed out, and policies intervened did the sector recover—emerging as the sole global supplier when demand exploded.

The third story is unfolding right now.

It's the narrative of fiber optics. Prices have surged by 650%, orders are booked through next year, buyers are paying upfront, and export growth has exceeded 200%.

These three stories, spanning over 15 years across seemingly unrelated industries, share a recurring structural pattern.

2

The Three-Stage Framework of 'China's AI Material Boom'

I refer to this phenomenon as the 'Three-Stage Framework of China's AI Material Boom' (a self-coined analytical model, not an academic definition):

Stage 1 · Price War Consolidation: Prolonged low-price competition drives out competitors, contracts capacity, and accumulates technology despite razor-thin margins.

Stage 2 · Technological Catch-Up: While overlooked, domestic firms achieve core technology breakthroughs and establish complete supply chains.

Stage 3 · Demand Explosion, Sole Supplier: An AI-driven demand surge meets rigid global supply, leaving China as the only country with sufficient capacity, sending prices skyrocketing.

Validation with rare earths: Price war consolidation (mass small mine closures in the 2000s), technological catch-up (domestication of rare earth processing/separation tech), demand explosion (magnetic materials for EV motors and AI servers). All three stages align perfectly.

Validation with transformers: Price war consolidation (2018-2021 sustained pressure on domestic profits), technological catch-up (over 95% localization of UHV and smart transformers), demand explosion (global AI data center construction boom, China as the only rapid-delivery supplier). All three stages align perfectly.

Validation with fiber optics: Price war consolidation (brutal 2017-2022 industry shakeout, some firms cut production), technological catch-up (China becomes the only country mastering all three mainstream preform technologies—PCVD, OVD, VAD—at scale), demand explosion (AI data centers' 10,000-GPU clusters require 5-10x more fiber than traditional facilities). All three stages align perfectly. (Source: 36Kr, April 2026)

3

Why 'Consolidation-Catch-Up-Explosion' and Not Another Path?

This question warrants deeper reflection.

An intuitive explanation might be: China's manufacturing scale means it can meet any demand. However, this oversimplifies the situation, as transformers and fiber optics are not low-end products—they possess significant technical barriers.

A more precise explanation: Price wars act as 'forced technological investment.'

When an industry sustains losses and profits cannot cover survival costs, firms face two choices: exit or reduce costs through technological innovation. Chinese fiber optics firms that survived the low-price era achieved breakthroughs in preform technology under the pressure to 'innovate or perish.' Meanwhile, overseas giants like Corning and Fujikura chose to control capacity and maintain profits during this period, lacking the incentive to further cut costs—creating a window for Chinese technological overtaking.

This creates a unique competitive ecosystem: The more brutal the industry shakeout, the stronger the surviving firms' technological foundations become. The less profitable external competitors find the sector, the more entrenched China's capacity barriers grow. By the time demand explodes, only China remains with available supply.

4

What Comes Next?

If this three-stage framework holds, its greatest value lies not in explaining the past but in identifying 'which industries are at which stage today.'

Several sectors warrant observation through this lens:

Silicon Carbide (SiC): A key material for power semiconductors, currently facing severe global supply shortages. Domestic players like Tianyue Advanced and Luxshare are in the technological catch-up phase, nearing the 'demand explosion' tipping point. EVs and AI power management could trigger this boom.

Liquid Cooling Equipment: AI servers' exploding thermal densities make liquid cooling essential, not optional. Global supply is currently dominated by a few Western firms, but China is rapidly closing the gap. If AI computing power continues doubling, this sector may soon enter the 'explosion' stage.

Specialty Fiber for Drones: A niche but rapidly growing sub-sector. Post-Russia-Ukraine conflict, fiber-guided drones became military standards, transforming fiber optics from infrastructure to consumables—a demand logic now validated, with China possessing a complete supply chain. (Source: 36Kr, April 2026)

Of course, this framework isn't infallible. Its validity hinges on whether 'technological catch-up' has truly occurred. If an industry's technical barriers remain unbroken, other countries may reap the benefits when demand explodes.

Where Are We Now?

Returning to fiber optics: In 2026, China's sector is in the 'mid-Stage 3' phase. Prices have reversed course, the supply-demand gap is visible to all, but upstream bottlenecks in capacity expansion (fiber preforms) have 18-24 month lead times, suggesting supply tightness may persist through 2027 or longer. (Source: CSC Securities, 2026)

An unresolved question lingers: When overseas capacity recovers and Chinese competitors expand, where will prices stabilize? Will they remain high and steady, or will they collapse back into price wars?

This is the hardest aspect to predict—and where the framework offers no answers. It can tell you 'which stage China is in' but not 'how long high prices will last.'

If we must mark a position: The fiber optics industry currently sits near the top of an upward curve, but the exact peak remains unknown.

This is a marker on the map, not the destination.

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