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FACTBOX -- Sources of tension between China and U.S.

February 13, 2010

Ben Blanchard and Lucy Hornby; Editing by Alex Richardson
Reuters
February 12, 2010

BEIJING (Reuters) -- U.S. President Barack Obama
plans to meet Tibetan spiritual leader the Dalai
Lama on Feb. 18, a move immediately denounced by China.

The Obama administration delayed meeting the
Dalai Lama, who has lived in exile since a failed
Tibetan uprising in 1959, until after Obama's
November visit to Beijing so as not to inflame
tensions with China, which accuses the monk of separatism.

With the two giant nations joined at the hip
economically, Sino-U.S. tensions are unlikely to
escalate into outright confrontation, but could
make cooperating on global economic and security issues all the more difficult.

Here are the main sources of tension:

CURRENCY AND DEBT

The United States complains that China keeps its
currency artificially undervalued, thus unfairly helping exporters.

China has unofficially pegged the yuan to the
dollar since mid-2008, meaning its currency has
weakened against other trade partners as the
value of the dollar has slid. Beijing is
concerned the value of its dollar holdings could
be eroded by massive debt issuances to fund the
U.S. stimulus. China held $789.6 billion in U.S.

Treasuries at end-November, displacing Japan in
September 2008 as the largest foreign holder.

U.S. lawmakers want to take action on the yuan,
but U.S. law makes it difficult to investigate alleged subsidies.

Rash U.S. moves that threaten China's massive
purchases of U.S. debt, and its funding of the U.S. deficit, are unlikely.

TRADE AND INVESTMENT

A World Trade Organisation panel is judging U.S.
duties on Chinese tyres, after the United States
for the first time imposed safeguard duties
agreed to when China joined the WTO.

Other trade disputes centre around steel
products, poultry, Chinese tariffs on raw
materials exports, and quality and safety
concerns over Chinese-made food, toys and other
goods that Chinese manufacturers view as a type of protectionism.

U.S. firms investing in China complain about
intellectual property theft, murky regulations,
corruption and unfair advantages enjoyed by domestic rivals.

China complains about investment barriers on the
U.S. side, citing resource investments blocked on national security grounds.

In 2009, U.S. exports to China totalled $77.4
billion, but were dwarfed by $220.8 billion in
exports from China to the United States,
Beijing's second biggest trade partner. Falling
demand thanks to the financial crisis narrowed the trade gap.

DIPLOMATIC AND MILITARY INFLUENCE

Exiled Tibetan spiritual leader the Dalai Lama
makes frequent visits to the United States, and
is due to meet U.S. President Barack Obama on
Feb. 18. China fears that ethnically distinct
Tibetan areas will strive for independence,
taking with them one-sixth of China's current
territory -- an area rich in minerals and water resources.

Taiwan remains a sore point. China has threatened
sanctions against companies making weapons or
planes involved in the U.S. plan to sell $6.4 billion of arms to Taiwan.

Beijing has never renounced the use of force to
bring self-ruled and democratic Taiwan, which it
considers its sovereign territory, under its
rule. The United States is legally obliged to help the island defend itself.

As China has grown to the world's third-largest
economy, it is gaining greater clout, especially in Asia and Africa.

It is also upgrading its military and space
capability, and Washington has said Beijing
should be more open about its defence spending and strategic intentions.

China is wary of the United States' global
military strength. U.S. patrols in waters China
considers its exclusive zone led to minor
incidents last year. In 2001 a U.S. spy plane was
forced to land in China after colliding with a Chinese fighter.

China and the United States work together in
talks over North Korea's nuclear weapons
programme. China worries that if its neighbour
collapses refugees could destabilise northeast China.

Washington also wants China to put stronger
pressure on North Korea, as well as Iran, over their nuclear activities.

INTERNET FREEDOMS

U.S. Internet firms have fared poorly in China,
which censors content and blocks many foreign
websites, including popular social media such as
Twitter and Facebook, and YouTube.

On Jan. 12, Google Inc said it might pull out of
the country after a sophisticated cyber-attack,
adding that it would seek talks about offering a
legal, uncensored search engine in China.

U.S. Secretary of State Hillary Clinton called on
China to openly and thoroughly investigate the
attacks and made a broad case for global Internet freedom on Jan. 21
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