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Intel's plan for a $2.5 billion plant in China is likely to draw foes on Capitol Hill

BEIJING—Intel Corp. announced plans Monday to build a $2.5 billion computer microchip plant in China, the largest single investment by a U.S. company here ever— but one that may face political opposition on Capitol Hill.

Intel Chief Executive Paul S. Otellini said the new plant in the northeastern city of Dalian would become the lowest-cost factory the company has ever operated.

The plant will make microchips a generation behind Intel's most advanced products, mostly for use in computers. Since China assembles the majority of the world's computers, producing the chips here "just makes a whole lot of sense," Otellini said.

Intel, the largest U.S. microchip manufacturer, is likely to run into opposition on Capitol Hill on a variety of grounds, including loss of jobs to China, the export of manufacturing capacity and national security. Congress has imposed limits on high-tech exports to China for fear they could find their way into military use.

"Given the atmosphere in Washington and given that there's a new Democratic sheriff in town, I think the deal will get a lot of scrutiny," said David Wolf, head of Wolf Group Asia, a strategic marketing consultancy for high-tech industries. "It's going to be challenged."

For now, though, Intel has won a green light from the Commerce Department to proceed. At a signing ceremony, U.S. Ambassador Clark Randt called the deal "a milestone in Sino-United States high-technology cooperation."

The Dalian plant will be Intel's first microchip plant in Asia and the first to be built by Intel from the ground up in 15 years. It currently operates microchip plants in Arizona, Oregon and New Mexico, as well as in Ireland and Israel.

Intel already has $1.3 billion in investment in China, employing 6,000 people at assembly test facilities and research centers in Shanghai and Chengdu.

Otellini, speaking at the ceremony in the Great Hall of the People, Beijing's showcase venue, described the new plant as crucial to the Santa Clara, Calif., company's future.

"China is our fastest-growing major market, and we believe it's critical that we invest in markets that will provide for future growth to better serve our customers," he said.

Otellini declined to detail the financial and other incentives that China offered Intel to put the plant in Dalian, a coastal city in the depressed northeastern rust belt, close to the North Korean border.

The new factory will produce 12-inch wafers with 90-nanometer circuits, according to a release earlier this month from the National Development and Reform Commission, a Chinese government body. A nanometer is a billionth of a meter; an average human hair is 60,000 nanometers in width.

The U.S. government approved the plan, since modern U.S. plants produce chips with 65-nanometer circuits and later this year will begin at the 45-nanometer level, one or two generations ahead. The tinier technology allows faster computing that uses less energy.

Otellini voiced hopes that by the time the Dalian factory enters production in 2010, it will be allowed to use "the most advanced technology that is available under a licensing policy with the U.S. government at the time," indicating that Intel may seek to produce at the 65-nanometer level in Dalian.

Wolf, the analyst, said he thinks the Dalian deal is good for Intel but that the plan may draw opposition from liberals worried about U.S. job losses and conservatives uneasy about "sending technology that we shouldn't be sending."

Intel laid off about 1,100 workers at its Oregon facilities last year, and U.S. manufacturing job losses are a sensitive issue for U.S. politicians as China's trade surplus with the United States widens.

Otellini declined to say how many employees the new plant would need.

A Chinese analyst dismissed concerns that China would obtain know-how from the plant, saying, "There won't be any outflow of Intel's technologies."

"It is wholly owned by Intel, which has complete control over all core technologies. Dalian just provides the land and has some local people employed," said Chen Dawei, deputy general engineer at the Electronic Standards Research Institute of the Ministry of Information Industry.

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McClatchy Newspapers special correspondent Fan Linjun contributed to this article.

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(c) 2007, McClatchy-Tribune Information Services.

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