Shares in semiconductor manufacturing international corporation fell after chinas largest chipmaker said us curbs could hit its business, a development that analysts say imperils its quest to challenge foreign rivals.

Smics hong kong-traded shares fell more than 5 per cent on monday after the group confirmed that the us department of commerce now requires american companies to apply for an export licence before selling it supplies, as earlier reported by the financial times.

As the supply period of certain equipment, accessories and raw materials exported from the us will be extended or are subject to uncertainties, it may have potential material adverse effects on the companys future production and operations, smic said in a filing to hong kongs stock exchange on sunday evening.

Analysts said that while washingtons restrictions on critical exports of semiconductor equipment to smic appear highly specific at first glance, they could amount to the heaviest blow yet to chinas ambitions to build a viable, self-reliant semiconductor industry.

The sanctions are likely to halt expansion of smics fabrication plants and could cause foreign customers to switch orders to rivals, industry experts believe.

The impact of the sanctions against smic will be much greater compared with the adverse effects of the sanctions against [fujian jinhua] or even huawei, industry research firm trendforce said on monday, referring to previous sanctions washington has taken against chinese tech groups.

Trendforces analysts believe us-based semiconductor equipment suppliers including applied materials, lam research and kla-tencor will bear the brunt of restrictions. dutch rival asml will also be affected because its machines contain us-made components.

In the absence of key semiconductor equipment from mainstream global suppliers, smic will suffer major roadblocks in the continued development of its advanced process technologies, portending the broader impact of us sanctions on the overall chinese semiconductor industry, trendforce added.

The issue for smic is that the most advanced equipment chinese suppliers can offer is for its 90 nanometre chips, many generations behind cutting-edge manufacturing technology and several behind what smic needs to keep expanding.

Although smic accounts for less than 5 per cent of the global market for made-to-order chips, it has long been chinas best hope for breaking the countrys dependence on foreign manufacturers. these include taiwan semiconductor manufacturing company, which controls half the world market for contract-manufactured chips.

Analysts estimate that about one-third of smics customers are foreign companies fabricating chips for the chinese market. according to mario morales, director of semiconductor research at international data corporation, us chip design houses qualcomm and broadcom use smic to make products for technologies including the internet of things, power management and display drivers.

Someone like qualcomm can or has to switch to a different fab as result of export restrictions, said roger entner, analyst at recon analytics.

Us technology executives said they were still uncertain what the trump administration wanted to achieveby imposing sanctions on smic and the us commerce department has declined to comment. but lawyers have pointed out that there could be room for us companies to transact with the chinese groups despite new restrictions.

This is not a complete ban, said eric crusius, a partner at the law firm holland & knight. companies have an opportunity to get a licence to export, and it remains to be seen how easy that will be.

But some in the industry believe the restrictions could be applied broadly. the commerce departments bureau of industry and security has told suppliers that smic and its subsidiaries posed an unacceptable risk of diversion to a military end use in china.

A chip industry executive said that since the components being restricted include machines on which all smic chips of a certain category would be manufactured, all of those exports could be viewed by the us government as posing an unacceptable risk.

Under these circumstances, i find it hard to imagine how this would not be a blanket ban, the executive said.