Intel Corp. (INTC), the world's top chip maker, will build a $2.5 billion plant in fast-growing China to produce microchips, in an effort to move up the mainland's technology food chain.

Intel's first chip plant in Asia brings it closer to a rising number of customers in China's rapidly developing electronics industry and dovetails with Beijing's policy of fostering the high-tech industry.

China is counting on the plan to create jobs, build the electronics industry and help rejuvenate a region that has been hurt by a decline in old polluting manufacturing technologies.

"China was an obvious choice," Chief Executive Paul Otellini told reporters.

"It is the second largest market in the world for IT and likely to be the largest market for IT by the time this factory comes on line," he said, referring to the mainland's growing output of information technology products.

Equipment and machinery account for about 40 percent of China's total imports in 2006, helping boost China's production of higher value added products in the future, say analysts.

"I would expect activity in China to accelerate," said Dan Heyler, the head of Merrill Lynch's regional semiconductor team.

"But this is driven more by Intel's strategic needs to ensure its strong relationships in China with the government to access the strong local market for PCs," he said.

The plant will produce chipsets beginning in 2010 using 300mm wafers in Dalian, a city situated in China's dusty northeast that Beijing is trying to revitalise with investment in high-tech projects.

"This project will attract additional investments by other large corporations to Dalian," said the Zhang Xiaoqiang, a vice chairman of China's top economic planning agency, the National Development and Reform Commission.

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The plant is a coup for the local and central governments of China, which were competing with other sites around the world.

"Dalian's infrastructure and government support is world class," said the NDRC's Zhang.

While the plant is not the most cutting edge it is one of the largest single investments by a foreign company in China, and illustrates China's steady climb up the manufacturing ladder.

"Our goal in China is to support the transformation from manufactured in China to innovated in China," said Otellini.

Intel is in the midst of a major overhaul, including price and job cuts and new product roll-outs, as it works to stave off recent advances by rival Advanced Micro Devices Inc. (NYSE:AMD - news), which has gained market share in the last few years.

The greenfield project will become Intel's eighth 300mm factory, the latest link in a network spread across the United States, Ireland and Israel.

The 300mm, or 12-inch, wafer plant will have a monthly capacity of 52,000 wafers and will use 90-nanometre technology to produce chip sets, the National Development and Reform Commission had said earlier this month.

Chipsets are the collection of secondary chips and interfaces that surround the main processor and will be used in desktop computers, laptops and other electronic devices.

The investment comes on top of the $1.3 billion Intel has spent on major test and assembly plants on the mainland.

Intel has U.S. government approval to export 90-nanometre technology through 2009. But since the plant won't begin production until 2010, it could go to smaller circuits if additional licenses were granted.

The 300mm-wafers lower production cost per chip while consuming 40 percent less energy and water per chip than a 200mm wafer factory.