China's major stock indices closed lower on Friday, with the Shanghai Composite Index falling below the 3,200-point mark, as market sentiment was weighed down by concerns over potential new U.S. restrictions on Chinese automotive software and hardware.

The Shanghai Composite dropped 1.33% to close at 3,168.52 points, while the Shenzhen Component Index plunged 1.8% to 9,795.94 points. The ChiNext Index, tracking growth enterprises, tumbled 1.76% to 1,975.3 points. Total trading volume across Shanghai, Shenzhen and Beijing exchanges reached 1.1631 trillion yuan, showing reduced market activity amid negative sentiment.

Sector Performance and Trade Concerns

Multiple sectors including retail, home appliances, media, textiles, real estate, food and beverage, pharmaceuticals, and liquor saw declines. However, semiconductor and automotive supply chain-related stocks showed relative resilience.

The market jitters followed comments from U.S. Commerce Secretary Gina Raimondo on Thursday indicating the Biden administration plans to announce new regulations targeting Chinese automotive software and hardware next week. This comes after the Commerce Department proposed in September to ban Chinese-made software and hardware in connected vehicles operating on U.S. roads.

"We don't want to have 2 million Chinese-made vehicles on our roads and then realize the threat we're facing," Raimondo said, adding that the government would carefully consider industry feedback while protecting national security.

The proposed measures would significantly limit access to the U.S. market for Chinese-made vehicles and trucks, potentially requiring global automakers to remove critical Chinese software and hardware from vehicles sold in America in coming years.

Central Bank Moves to Ensure Liquidity

Meanwhile, China's central bank announced on Friday it would suspend open market treasury bond purchases starting in January, citing persistent supply-demand imbalances in the government bond market. The People's Bank of China (PBOC) emphasized this decision doesn't signal monetary tightening.

The PBOC stated it would maintain ample market liquidity through open market operations and reserve requirement ratio cuts to ensure financial stability. Dong Ximiao, chief researcher at China Merchants Union Consumer Finance, noted, "Treasury bond purchases are an important channel for the central bank's liquidity injections. Suspending them doesn't equate to liquidity contraction."

Analysts suggest the U.S. auto industry restrictions could exacerbate economic friction between the world's two largest economies, while China's monetary policy adjustments aim to provide stability amid market volatility. Investors are advised to closely monitor international developments and policy changes for informed decision-making.