One truth I know is, as an engineer, if I do not deliver value, I will lose my job. Intel has gone from the world's pre-eminent fab to second string. The same truth must visit Intel's current management if Intel wants to continue to be in the semi fab business.
Intel's Dalian Plant didn't open until 2010.
That facility also only makes Flash, and probably some notebook processors and other mobile solutions. The majority of their server grade and higher end chips are still made in their Oregon facility.
The probably reason for Intel's alleged decline may be due to the more efficient and evolving fab/fabless business model compared to the IDM model.
TSMC and Samsung's manufacturing business are dedicated fabs and make chips for all sorts of other companies (something Intel vehemently opposed in the past) and thus can divert significantly more resources and R&D towards manufacturing processes.
In addition to integration, process and manufacturing, Intel has to focus on the software and circuit design for their CPUs as well which makes it logistically difficult to compete against an ensemble of dedicated companies for each step of the semiconductor production flow.
I agree with you that the reason US companies like Intel off-shore to China is the lower cost of engineering talent in China versus the US. This has been the justification for off-shoring engineering to China over the last 20 years. Consider how short sighted this decision is. Intel used to have the top fabs in the world. Today that distinction belongs to TSMC and Samsung. Intel is at least a generation behind the leaders. Many of the engineers now working for TSMC and Samsung used to be employed by Intel but they have moved on to higher paying jobs and more responsibility with leading companies. Off-shoring is driven by finance people, which may be the only people left at Intel, but causes permanent engineering brain damage.