The Biden administration spurned a plan by Intel Corp. to increase production in China over security concerns, dealing a setback to an idea pitched as a fix for U.S. chip shortages, according to people familiar with the deliberations. Intel, the world’s largest chipmaker, has proposed using a factory in Chengdu, China, to manufacture silicon wafers, said the people, who asked not to be identified because the discussions were private. That production could have been online by the end of 2022, helping ease a global supply crunch. But at the same time, it’s been seeking federal assistance to ramp up research...