Intel investments Intel Receives U.S. Subsidies While Expanding in China

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Despite the current geopolitical tensions, Intel has announced plans to expand its semiconductor packaging and testing facility in Chengdu, China. The California-based company intends to invest approximately $300 million (around €280 million) to upgrade the plant, according to the Chengdu local planning authority. This move highlights Intel's ongoing commitment to its operations in China, even as the company receives substantial subsidies in the U.S. for domestic chip production.

Intel's decision to invest $300 million in expanding its semiconductor packaging and testing facility in Chengdu, China, has caught many by surprise, especially amid escalating tensions in the global technology and semiconductor industries. This move comes at a time when the U.S. government is actively trying to limit China's technological growth and secure semiconductor production within its borders. Washington's efforts to bring chip manufacturing back to the U.S. are exemplified by the significant subsidies Intel has already received for domestic production.

Given the political context, the reaction of both the current and incoming U.S. administrations to Intel’s investment decision is uncertain. Intel's commitment to its operations in China—despite receiving U.S. government support for onshore production—raises important questions about the balance between maintaining international operations and responding to domestic pressures. This strategic choice will likely be scrutinized closely as the U.S. continues its attempts to strengthen its semiconductor sector while restricting China's technological advancements.

Security investigation for Intel chips

On the other side of the hardening fronts, in the People's Republic of China, Intel also recently faced headwinds. In mid-October, the government-affiliated Cybersecurity Association of China (CSAC) publicly called for a security investigation into Intel chips in China. The American company's products had vulnerabilities and could contain "secret backdoors", the CSAC wrote on its social media channels.

This warning shot to Intel did not come from a government agency, but only from an industry association close to the government. However, the CSAC is close to the powerful Cyberspace Administration of China (CAC), which can initiate such investigations against foreign chip manufacturers and has done so in the past.

Despite all this—or perhaps precisely because of it—a substantial expansion of capacities for testing and packaging server chips is now planned at the existing Intel plant in Chengdu. Provided, of course, that the announcement from Chengdu is confirmed and not prevented at the last minute by political intervention.

Intel's main aim is to expand its capacities in the server chip segment for the Chinese market. The expansion of data centers is booming in China and has just received a significant boost when the central government in Beijing declared big data, data centers and artificial intelligence to be part of the "new high-quality productive forces". These areas are now to receive special support as part of the digitalization of the Chinese economy.

Support for the local supply chain

The testing and packaging plant in Chengdu is already one of the three largest plants of its kind operated by Intel worldwide. Half of all chips for mobile devices that Intel sells worldwide are tested and packaged there. But now the server market in China and globally is also to be better served. The USD 300 million will flow into the local Intel subsidiary "Intel Products (Chengdu)" and should primarily serve "the needs of Chinese customers for highly efficient, customized packaging solutions", according to the Chinese-language report from the capital of Sichuan province.

Intel hopes to "improve the efficiency of its local supply chains, support for Chinese customers and its response time", the announcement continued. At the same time, a new customer service center is to be built in which Chinese companies can be offered "one-stop" solutions for their digitalization.

Despite the tensions between Washington and Beijing, China is still Intel's largest sales market globally. According to the company's financial reports, the Americans generated 27 percent of their total turnover in China last year. In its home market of the USA, the figure is 26 percent. If Intel now wants to expand in the server market, this is also taking place against the backdrop of increasingly fierce competition in this segment. In the third quarter of this year, Intel's competitor AMD generated more sales in the data center segment than the long-standing market leader Intel for the first time. Although Intel still sells more server chips than AMD worldwide, AMD was able to generate better margins.

Dance at all parties

Subsequent investments to strengthen the China business and defend it against competitors would therefore not be surprising in normal times on this scale. However, with the "chip war" against China that began under the first Trump presidency, which has been further intensified under President Biden, and now with a second Trump presidency just around the corner, these are anything but "normal times" for the global semiconductor industry.

Intel's strategy can be described as an attempt to keep both sides happy. Under the "Chips and Science Act", which attempts to bring semiconductor production back home, Intel received USD 8.5 billion in subsidies and a further USD 11 billion in loans as recently as March of this year. However, this was in return for the promise to build new chip plants in the USA.

On the other hand, investing in China is the best protection against becoming a victim of Chinese retaliation. The communist cadres in Beijing look favorably on investment in their domestic high-tech industry. They explicitly encourage this and roll out the red carpet for American CEOs such as Intel boss Pat Gelsinger and Tesla CEO Elon Musk when they land in Beijing. Anyone who wants to continue to be successful in the Chinese market, despite all the geopolitical risks, also needs the goodwill of the technocratic party leaders in Beijing. (sb)

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