The $2.5bn chip plant, to be called Fab 68, will be located in the north-eastern port city of Dalian, in Liaoning province. The company already manufactures memory chips in Shanghai and Chengdu, and employs more than 6000 people in China.

“This project confirms the strategic importance of China in our global strategy and the IT industry around the world,” said Intel president and CEO Paul Otellini. “China is our fastest-growing major market, and we believe it is critical that we invest in markets that will provide for future growth to better serve our customers.”

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Mr Otellini added that Intel wanted to “support a transition from ‘manufactured in China’ to ‘innovated in China’”.

“Intel has been involved in China for more than 22 years and over that time we have invested in excess of $1.3bn in assembly test facilities and research and development. This new investment will bring our total to just under $4bn, making Intel one of the largest foreign investors in China,” he said.

Zhang Xiaoqiang, vice-chairman of China’s National Development and Reform Commission, also commented in the official announcement: “This is one of the major co-operative projects between China and the US in the area of integrated circuits manufacturing in recent years.

“The project will further strengthen Intel’s leadership position in semiconductor manufacturing. At the same time, the investment in Dalian will have a positive impact on the regional economic development and the development of integrated circuits industry in the old industrial base of north-east China. We welcome Intel and other multinational companies to invest and co-operate with China.”

He said he hoped the Intel investment would help attract other high value-added research projects to the region.

Fab 68, scheduled to open in 2010, will produce chipsets that aid the company’s core microprocessors, which are used in personal computers and data-network servers. The chips will be made on 12-inch wafers (known as 300mm in industry terms). Construction will begin later this year. Intel has not yet offered details on production capacity, though some reports have put monthly capacity at 52,000 chips on 90-nanometer (nm) manufacturing.

The factory is Intel’s first new-build site since Fab 10 in Ireland in 1992, as the company usually prefers to develop existing sites. It has invested more than $40bn into its manufacturing plants since 2000.

Fab 68 will be Intel’s most advanced facility in China to date, but the 90-nm technology it uses will nonetheless be at least a generation behind Intel’s most advanced computer chips. The company makes its chips using 65nm process technology and is moving toward 45nm. By the time Fab 68 opens, Intel hopes to be making microprocessors using 32nm.

By building a less advanced factory, analysts said, Intel is revealing a shift in its manufacturing strategy and illustrating China’s importance in the global electronics market.