The integrated wafer plant, called Fab 68, will be the first of its kind for Intel in Asia, bringing sophisticated technology to a nation more famous for its status as the world's low-end factory floor.

"We would likely look to put in production the most advanced technology that is available under our licensing policy from the US government at the time," Intel President and CEO Paul Otellini said, referring to US controls on the sale of potentially sensitive technology that may also have military uses.

Initially the plant, in northeast China's Dalian city, will focus on less advanced chipsets for computers although Intel did not rule out gradually incorporating more advanced technology.

"The opportunity to do other products is really wide open, so we will watch that as the market and various government regulations evolve," Otellini told a briefing in Beijing.

"Our objective is to have this be the most cost-effective wafer plant in our network and ... to be able to try out new technology and new techniques of manufacturing to lower our costs."

Construction of Fab 68, which will produce the 300-millimetre (12-inch) wafers on which microchips are built, is scheduled to begin later this year with production slated for the first half of 2010, the company said.

It is the first time since 1992, when Intel establised its Fab 10 in Ireland, that the company has built a plant from the ground up at a brand new site.

"Fab 68 will be our first new wafer fab at a new site in 15 years ... This new investment will bring our total to just under four billion dollars, making Intel one of the largest foreign investors in China," a company statement said.

When completed, Fab 68 will be part of an Intel network which by 2010 will include eight top of the line 300-millimetre factories, with other fabs located in the United States, Ireland and Israel.

The wafer plant nearly triples Intel's investment in China from its current 1.3 billion dollars, reflecting the growing importance of the country as a market in its own right and not just as an export base, analysts said.

"The average personal computer density remains rather low in China," said Simon Ye, a Shanghai-based consultant with Gartner Consulting. "The potential for the computer market here is rather big."

Intel's planned facility is also seen as part of China's gradual movement up the value-added chain and a victory for its ambition of attracting more high-tech investment.

So far China has been the centre for labour-intensive assembly of finished parts, mostly imported from more advanced economies, and one official complained recently that it is foreign companies that make most money in that process.

"The government has an ambition of raising the level of the manufacturing industry," said Gartner's Ye. "It hopes to be able to attract more investment by high-tech, low-polluting enterprises."

The government's efforts to transform its labour-intensive economy into one more reliant on high technology has in the past drawn some concerns from international rivals in other industries.

"The biggest impact will be the improvement in China's manufacturing technology and that's what other countries are afraid of," said Patrick Liao, a Taiwan-based semiconductor specialist with International Data Corp.

Western companies and governments, especially Washington, have previously expressed concerns over technology transfer in key high-tech industries such as aerospace, rail and cars.

Meanwhile, the Chinese government welcomed the location of the plant in the economically struggling northeast of the country.

"(It) will have a positive impact on the regional economic development and the development of an integrated circuit (chip) industry in the old industrial base of northeast China," said Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission.

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