New US export control measures aimed at slowing China's technological and military advances saw shares in Chinese tech giants such as Alibaba Group (NYSE:BABA) and chipmakers drop on Monday.
President Joe Biden's administration published a sweeping set of export controls on Friday, including a measure to cut China off from certain semiconductor chips made anywhere in the world with US equipment.
The raft of measures, some of which take immediate effect, could amount to the biggest shift in US policy toward shipping technology to China since the 1990s, Reuters reported.
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The new controls come at a time when the global chip industry is already facing major headwinds from tumbling demand post-COVID-19 in computers, smartphones and other electronic devices.
Under the new regulations, US companies must cease supplying Chinese chipmakers with equipment that can produce relatively advanced chips - logic chips under 16 nanometers (nm), DRAM chips below 18 nm, and NAND chips with 28 layers or more - unless they first obtain a license.
Analysts expected this to impact China's top contract chipmakers such as Semiconductor Manufacturing International Corp and Hua Hong Semiconductor Ltd, as well as state-backed leading memory chipmakers Yangtze Memory Technologies Co Ltd and Changxin Memory Technologies.
"The US restrictions could make development of China's advanced chip technologies even more challenging," analysts at Citi said in a note.
The new rules also include blocking shipments of a broad array of chips for use in Chinese supercomputing systems which can be used to develop nuclear weapons and other military technologies.
Some industry experts said the ban could also hit commercial data centers at Chinese tech giants such as eCommerce company Alibaba which relies on data centres extensively, Reuters said.
The bid drop in tech shares on Monday led China's market down on its first post-Golden Week holiday trading session. The impact on tech shares outside of China was limited as financial markets in South Korea, Japan and Taiwan were closed for separate holidays on Monday.