TOKYO (Reuters) - Taiwan’s Foxconn, the world’s largest contract electronics maker, is not a favored bidder for Toshiba Corp’s memory chip business due to its close ties with China, sources with direct knowledge of the deal said.

Slideshow ( 2 images )

The Japanese government is worried that selling to bidders close to China may lead to the transference of key technology, the sources said.

Toshiba is aware of the government’s wishes and “will take into account how close bidders are to China in the selection,” one of the sources said, adding that Foxconn has production lines in China.

Toshiba, the second-biggest NAND chip producer after South Korea’s Samsung Electronics Co Ltd, is considering selling the majority - or all - of its marquee flash-memory chip business, as it seeks to make up for a $6.3 billion writedown from its U.S. nuclear unit Westinghouse.

Toshiba is valuing its chip business at least 1.5 trillion yen ($13.1 billion), people familiar with the matter have said. Initial bids are due by the end of the month.

Foxconn, formally known as Hon Hai Precision Industry Co Ltd, said last week it was “definitely bidding” for Toshiba’s chip business and that it was “very confident” it could buy into it.

Earlier on Thursday the Nikkei business daily reported that Foxconn has approached South Korean chip maker SK Hynix Inc to explore a joint bid.

Foxconn on Thursday declined to comment on Toshiba-related matters. SK Hynix also declined to comment.

An industry source familiar with the matter said TSMC, another Taiwanese firm and the world’s largest contract chipmaker, is also deeply interested in Toshiba’s chip unit.

Elizabeth Sun, a spokeswoman for TSMC, said the company was looking at looking at Toshiba’s chip business but had yet to come to a decision.

Sources have said other potential bidders include data storage firm Western Digital Corp which operates a Japanese chip plant with Toshiba, and rival Micron Technology Inc, as well as financial investors such as Bain Capital.

Toshiba has sent invitation letters to around 10 potential bidders, one of the sources said.