Intel, which is struggling to regain a lead in chip production technology, hoped the merger with Tower would help accelerate a shift to become a major manufacturer for other designers of chips. Intel has previously mainly used its factories to produce chips it both designs and sells.

Tower, which has an office in Shanghai, was founded in 1993 and operates a relatively small chip manufacturing service compared with giants like Taiwan Semiconductor Manufacturing Company. Intel will pay Tower $353 million for failing to close the deal, according to a statement by Intel.

Intel’s inability to get the merger approved in China underlines what could become an increasingly hard choice for multinationals: They may need to choose between having operations in China or carrying out mergers and acquisitions around the globe. Such concerns could produce a further chill on foreign investment in China, which has already plunged this year because of geopolitical concerns.

The Chinese government agency that decides whether to approve global mergers, the State Administration for Market Regulation, is now “in an uncomfortable spotlight as a proxy for China’s commitment to market access for foreign investors,” said Han Shen Lin, the China country director for The Asia Group, an advisory firm in Washington.

Before the agency was established in 2018, global mergers were reviewed in China mainly by a unit of the Ministry of Commerce, which is dominated by civil servants with extensive international experience and contact with foreign businesses and governments.