China's chip industry suffers its worst drop in months

- Beijing's microchip industry is feeling the heat of China's regulatory scrutiny.

A warning in state media Tuesday that regulators will show no tolerance in cracking down on speculators in the chip market send related shares lower on Monday.

China's largest chip foundry Hua Hong Semiconductor Manufacturing International Corp. plunged 5% in Hong Kong, while China's biggest chip foundry dropped 5.7% in its worst drop in nearly three months. Shanghai-listed Will Semiconductor Co. fell 5.7%, while Hubei Tech Semiconductors Co. was down 3.3%.

For investors, the warning presents another challenge in an increasingly uncertain regulatory landscape, coming soon after the launch of a probe this month into possible chip price manipulation - chilling a sector buoyed by a global semiconductor shortage that's approaching 12 months mark.

This year SMIC has also rallied on bets that semiconductor firms will benefit from state largesse, even as Beijing encroaches a broader crackdown in the tech sector that's ensnared the likes of Alibaba Group Holding Ltd. and Tencent Holdings Ltd.

In the commentary Friday, broadcaster CCTV said that some auto chip distributors have'maliciously' pushed up prices. It urged sellers to be disciplined and refrain from hoarding components.

A prolonged global chip shortage has driven the price of chipsets, complicating China's effort to get clout in advanced components used in devices from smartphones to base stations. Chinese automakers, for example import around 90% of the high-end chips they require.

Traders are cautiously looking for signs as to which other sectors could be affected by Beijing after a ban on profits for afterschool tutoring firms triggered a buy-off last month amid concerns over further crackdowns in digital gaming, e-cigarettes and property.