Intel is reportedly watching Atom sales in China, concerned about netbook popularity in that area.

According to Digitimes’ sources, Intel has been monitoring Atom supplies and controlling availability in the Chinese market since the beginning of May. The report says Intel has even rejected orders from some China-based white-box players and that the company also closely monitoring Taiwan-based notebook makers with high inventory levels of Atom processors.

Netbook popularity is growing by the day and while some would argue that Intel should be happy the small processor is selling so well, when you take a step back, it’s easy to see why it’s all making Intel a little nervous.

With the world and its mother ponying up for netbooks and manufacturers producing netbooks with larger displays, people are starting to use the little computers as a replacement for everyday computing. Intel is no doubt worried that the Atom is going to cannibalize the sales of its more expensive Celeron, Pentium or Core processors.

According to Digitimes, Intel commented by stating that the story is unfounded and that the company does not comment on industry rumors, adding that its business model is to work with OEMs, ODMs, distributors and selected independent design houses.

Check out the full report on Digitimes.