The investment in a plant called Fab 68 in the north eastern Chinese city of Dalian will become Intel’s first fab in Asia.
“China is our fastest-growing major market and we believe it's critical that we invest in markets that will provide for future growth to better serve our customers,” Mr Otellini said.
The Fab 68 plant is the first wafer fabrication facility the company has built at a new site in 15 years. The last time Intel broke ground for a fab at a new site was with the construction of Fab 10 in Ireland in 1992.
“Intel has been involved in China for more than 22 years and over that time we’ve invested in excess of $1.3 billion in assembly test facilities and research and development,” Mr Otellini said.
“This new investment will bring our total to just under $4 billion, making Intel one of the largest foreign investors in China.”
The company said construction on Fab 68 would begin later this year and production is expected to start in the first half of 2010. Initial production would be dedicated to chipsets to support Intel’s core microprocessor business.
Zhang Xiaoqiang, the vice chairman of the National Development and Reform Commission that approved Intel’s foreign investment said the development was one of the biggest cooperative development projects between China and the US in recent years.
“We support Intel's initiative to expand and strengthen cooperation with relevant parties in a number of areas, such as talent training, technology standards, improved information technology for rural areas and digital health, to promote the mutual benefit and win-win of Intel and the information industry of China, and to achieve the goal of growing together,” Mr Zhang said in a statement.
When completed, Fab 68 will become part of Intel's manufacturing network that includes eight 300mm factories in 2010 with other fabs located in the United States, Ireland and Israel.
Manufacturing with 300mm wafers dramatically increases the ability to produce semiconductors at a lower cost compared with more commonly used 200mm (eight-inch) wafers.
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