Intel matters to US chipmaking. Its tangled relationship with China makes things complicated.

As Alvin Nguyen, a senior analyst at Forrester, told Business Insider, “Intel’s importance to the US in terms of semiconductor manufacturing and products has garnered it significant funding.”

That has been reinforced more recently, too. Intel has been presented with different options to fortify its business since seeing its value halve this year following production and strategy woes that have left it well behind in the generative-AI boom.

One option would be for Intel’s rival Qualcomm to buy it; The Wall Street Journal reported last week that Qualcomm had recently approached the 56-year-old company. In another scenario, Intel could get a huge capital injection from the investment giant Apollo, which, according to a Bloomberg report, is willing to put up to $5 billion in.

Whether any of these scenarios comes to fruition is uncertain. What does seem certain, however, is that Intel has managed to draw these options as it is still held to be strategically important to the future of the US chip industry.

The US needs Intel — a company that both designs and manufactures chips — at a time when reducing reliance on overseas chip manufacturers like Taiwan’s TSMC has become a priority for national security reasons.

But efforts to strengthen the embattled chip firm as a national champion will have to contend with the fact that Intel has deep ties to China — the country that is arguably the biggest reason behind the push to strengthen domestic chip manufacturing.

A national champion with close ties to China

One of the key reasons the US enacted the CHIPS Act in 2022 was to reduce its reliance on overseas manufacturers for making sophisticated bits of hardware that power the world’s electronics.

While Nvidia, AMD, and other Silicon Valley companies have become global leaders in chip design, manufacturing has typically been outsourced to TSMC, a source of recent tension given the looming threat of a Chinese invasion of Taiwan.

With computer chips increasingly being used to handle and process vast amounts of data, US officials think there’s an urgent need to build manufacturing plants that the likes of Nvidia can turn to instead.

This is where Intel comes in. As things stand, Intel is the only US chip firm with plants, known as fabs, that are capable of making advanced semiconductors. It has facilities in Arizona, New Mexico, and Oregon. TSMC is set to open a fab in Arizona next year, while reports suggest OpenAI’s CEO, Sam Altman, is seeking to raise funds to create chip-manufacturing plants. But even then, Intel is set to remain the main producer of leading-edge chips on US soil.

Notably, Intel has operations in China, too. Intel’s website says its 385,000-square-meter campus in Chengdu is home to two factories that “manufacture chipsets and microprocessors for computers all over the world,” though Pat Gelsinger, Intel’s CEO, told The New York Times in March that they served the domestic Chinese market.

Intel’s customers in China include Alibaba and TikTok’s parent company, ByteDance, which have been subject to scrutiny from the US government. Gelsinger argued to The Times that “the business community should be a bridge between the US and China.”

While Intel sold a fab in the port city of Dalian to South Korea’s SK Hynix in 2020, investment has continued to pour into China through its venture-capital arm, Intel Capital. A Financial Times report in July said the investment vehicle owned stakes in 43 startups based in China.

It’s worth noting these ties have remained despite Beijing’s efforts to become self-sufficient, which have picked up since Washington implemented strict export controls in 2022 to curb the supply of America’s most advanced chip technology to China.

China’s bid to create a self-sufficient domestic industry, which locals call the Xinchuang initiative, could eventually lead to the country bypassing Intel in the supply chain. In March, the Financial Times reported that new guidelines in China meant Intel’s tech would be phased out of the Chinese government’s PCs and servers.

Forrester’s Nguyen argued that we shouldn’t be surprised about Intel’s links to China. “Intel’s ties to key businesses in China are typical for a high-tech firm,” he said. “They have production in the country and clientele who benefit from their technology.”

This much is true. But it’s also worth considering what a struggling Intel would mean for China’s broader technological ambitions.

“A weaker Intel and a weaker US semiconductor manufacturing base is probably a positive for China,” Stacy Rasgon, an analyst at the research firm Bernstein, told Yahoo Finance’s “Morning Brief” on Monday.

For that reason, Rasgon said he couldn’t see “any reason” for Chinese regulators to support a Qualcomm deal, which they would have a say in because of Intel’s operations in the country.

As Intel and the US consider plans to increase manufacturing capacity at home, the company’s China ties will loom large in the global chip race.