Intel Fab Expansion in China Allegedly Discouraged by White House

One of Intel's best hopes to quickly bring online semiconductor manufacturing capacity has seemingly bit the dust. Citing sources close to the situation, Bloomberg reports that the White House "strongly discouraged" an Intel-proposed plan to add manufacturing capacity. The issue? The factory is located in Chengdu, China. Despite the well-known ongoing shortages in the semiconductor industry, it seems there are some political lines that are not to be crossed.

The Biden Administration is reported to have shown a strong negative sentiment towards any sort of semiconductor investment within China's borders. The reasons for that would be many, and security concerns are certainly one of them. 

However, there's also the matter of China's increasing investment in semiconductor technologies. The country famously included "semiconductor sufficiency" in its 14th five-year plan (2021-2026). Besides heavily investing in state-sponsored semiconductor electronics companies and increasing internal chip output to more than 1 billion a day, China has also been strongly pursuing intellectual property registrations - which do include patents related to semiconductor manufacturing. 

China also controls most of the rare metal production in the entire planet: 55% of global rare earth mining output is China's, and 85% of all rare earth minerals have to go through the country in one way or another throughout their semiconductor manufacturing process. It's a delicate situation, let's say.

The ongoing trade war between the countries does nothing to reduce the tension here. And since at least part of Intel's investment in capacity expansion is being funded by the U.S. government itself, it's understandable that other "solutions" would better be located in the U.S. or Europe.

“Intel and the Biden administration share a goal to address the ongoing industrywide shortage of microchips, and we have explored a number of approaches with the U.S. government,” Intel said in a statement to Bloomberg. Bloomberg notes Intel said it currently has “no plans” to increase production in China after meeting with government officials, and that it will pursue “other solutions.” 

That Intel even proposed a solution in China may be a testament to how advantageous it would be compared to other, less politically sensitive options. It's reported that the factory expansion would be complete by the end of 2022, and the investment would almost certainly see faster returns in China compared to any U.S. or Europe-based option. And remember: Intel went in with a plan.

It seems some additional relief for the stifled semiconductor industry may have been postponed just slightly longer, at least until Intel brings in a more appealing solution. Until then, shortages will likely continue to be a part of the marketplace.