In a decision with potentially long-ranging impacts, the Chinese government announced this week it has given approval for Intel to build a huge, $2.5 billion chip fabrication plant in Dalian, a port city in the northeastern part of the country. The plant, if built, would be the first constructed in China that employs cutting edge chip wafer manufacturing technology.

Intel has previously said it has a potential interest in building a manufacturing presence in China, though after the Chinese announcement it has neither confirmed or denied any specific construction plans. What exctly led to the announced approval for the plant by China's top economic agency is not clear, but it appears it came from negotiations of some kind between Intel and the Chinese government.

The potential move by Intel is likely driven both by interest in further developing the Chinese market, and by supply chain considerations. A huge and growing percentage of the world's PCs and other computers are produced in China, as well as other Asian countries, and having a wafer fabrication plant there could reduce logistics costs and improve coordination

While Intel already has final chip assembly operations in Asia, it does not have have one of its very high tech wafer fabircation plants there. The possibility of Intel making the move already has some concerned that the dominant chip provider will wind up transferring too much technical know-how to China, enabling the country to eventually produce high-end chips itself much sooner than it could othewise.

There are current limits of chip exports to China and other countries that may have potential military uses, and a move by Intel to build a state-of-art plant in China is sure to trigger both regulatory review as well as a backlash among some in Congress and elsewhere concerned about issues ranging from national security to outsourcing of jobs to national competitiveness issues.