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

• The US is ready to push Intel as a national champion in chips.
• The chipmaker has been struggling, causing Qualcomm to reportedly approach Intel for takeover talks.
• Analysts say a weaker Intel would likely be positive for China, but the two have a complicated history.

America's future success in chipmaking has a lot riding on Intel.

With more than half a century of history in the US chip industry, Intel is a company that commands a huge sense of national pride in Washington — one that US officials would like to maintain well into the future as the country seeks to reinvigorate domestic chip manufacturing.

President Joe Biden made that point when he visited Intel's Arizona campus in March and announced the company would receive $8.5 billion in funding from the CHIPS Act. Last week, Biden awarded Intel a further $3 billion through the same act.

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

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

One option would see Intel bought by rival Qualcomm, which has approached the 56-year-old company in recent days, The Wall Street Journal reported. In another scenario, Intel could get a huge capital injection from investment giant Apollo, which, according to Bloomberg, 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 fresh 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 launched its 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 players 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 possible 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 at home 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 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. According to its website, Intel's 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, the CEO of Intel, told The New York Times earlier this year that they "serve the domestic Chinese market."

Intel's customers in China include Alibaba and TikTok parent company ByteDance, which have been subject to scrutiny from the US government. Gelsinger noted 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 the country through its venture capital arm, Intel Capital. A Financial Times report in July said the investment vehicle owned stakes in 43 China-based startups.

It's worth noting these ties have remained despite recent efforts from Beijing to become self-sufficient, which have picked up since Washington implemented strict new 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 Intel's tech would be phased out of Chinese government PCs and servers.

As Forrester's Nguyen notes, we shouldn't be so 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 research firm Bernstein, told Yahoo Finance Morning Brief on Monday.

For that reason, Rasgon said he couldn't see "any reason" for Chinese regulators to support the Qualcomm deal, which it would have a say over due to 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.