China is holding up Arm’s plan to offload its troubled joint venture in the country, months after the UK chip designer agreed to transfer the unit to its owner SoftBank as a prelude to a blockbuster stock market listing.

Three people close to the matter say Chinese officials have declined to process the paperwork confirming Arm China’s transfer to a new Vision Fund entity since the documents were submitted to business regulators around May last year.

They added that Beijing was determined to keep the UK chip designer as the unit’s largest shareholder, at a time when the US is trying to cut off China’s access to cutting-edge semiconductor technology.

“China does not want to lose Arm at this juncture,” said a Chinese official involved in overseeing Arm China, adding: “The chip war between the US and China continues to escalate and Arm is a must-have ally for China’s chip industry.”

Arm’s semiconductor blueprints underpin almost all mobile phones and are also used in servers, cars and other devices.

Paperwork to process share transfers in China ordinarily takes five to 10 days to complete. People close to the matter said it remained possible that regulators would change their minds and permit the change.

Arm and SoftBank have for months operated as if the restructuring was already finished. Arm told the Financial Times that the share transfer was complete as far back as June and reiterated this position this week.

The Japanese group’s financial filings show a new Vision Fund investment in Arm China for the first quarter of 2022 and indicate the China stake was shifted to a Vision Fund entity called Acetone Limited.

But the official and current corporate records in China show Arm Limited UK continues to retain its 47.33 per cent stake in Arm China.

When presented with evidence that Chinese government records did not register the transfer, a spokesperson for Arm said the share transfer was complete and declined to comment further. SoftBank declined to comment.

People close to both Arm and parent SoftBank privately admit the restructuring still requires the Chinese record change, insisting for months that the China paperwork delay was a minor issue that would soon be resolved.

But the official, who asked not to be named because of the sensitivity of the matter, said: “The Chinese government will do its utmost to deepen the linkages and relationships between Arm and the domestic semiconductor industry.”

“China doesn’t want SoftBank which has no technology,” added a person close to Arm China, noting the Japanese group was also planning to sell down its Arm stake in the future.

The uncertainty over the status of the transaction could complicate plans to return Arm to the public markets. SoftBank chair Masayoshi Son has been banking on a successful listing to help the Japanese group mount a turnround, with the value of its investments hit hard by a broader tech downturn.

SoftBank put a plan in motion to shift Arm’s shares in March last year. The intention was to separate the UK chip designer from its troublesome Arm China venture run by Allen Wu, who had long-resisted efforts to remove him from the company.

The prospect of losing Arm soon spurred high-level officials in Beijing to step in and remove Wu, who disregarded a board vote for his ouster in June 2020 and had been running the venture as his personal fiefdom ever since.

Even after the renegade China chief was removed, Arm and SoftBank vowed to push forward with the share transfer. People close to Arm said the share transfer was necessary to simplify the group’s financial reporting.

The UK group has taken other steps to distance itself from Arm China, including replacing two Arm executives on the Arm China board with SoftBank executives.

However, another person involved in the negotiations said SoftBank had seen the share transfer as a useful tool to spur Chinese officials to remove Wu. With control over Arm China resolved, and auditors signing off on its books, there was less incentive to demand the share transfer go through, the person said.

The China business has been a major growth driver for Arm. Sales at Arm China have risen from $600mn for the 12 months to March 2021 to more than $800mn last year, according to filings and people close to the matter.

Although profit at the China unit collapsed 90 per cent last year from the previous year, it was primarily from a multi-million dollar foreign exchange loss, according to one person close to Arm China’s board. Arm China did not respond to a request for comment.