BEIJING -- The world is watching: nearly half of the Bush administration is in Beijing this week for the first-ever Sino-US strategic economic dialogue slated for Thursday and Friday.

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The two sides will focus on wide-ranging issues including the bilateral trade imbalance, the renminbi exchange rate, further opening-up of China's financial sector to foreign competition, intellectual property rights protection as well as restrictions on high-tech US exports to China.

Observers say the biggest US government delegation ever to visit China, consisting US Federal Reserve Chairman Ben Bernanke, Commerce Secretary Carlos Gutierrez among four cabinet members and US Trade Representative Susan Schwab, shows the sincerity of US side to reshape bilateral economic relations with China.

China's trade surplus over the United States reached 116.24 billion US dollars in the first 10 months of this year, exceeding the 114.17 billion US dollars for the whole 2005, according to figures provided by the General Administration of Customs.

With a growing trade surplus, China is under constant pressure from the United States to raise the value of its currency, though the yuan has appreciated by nearly 4 percent since July 21, 2005, when the Chinese government first allowed it to float against the US dollar within a daily 0.3 percent band around the official central parity rate.

The exchange rate was set at about 8.28 yuan per US dollar before the 2005 reform. Many American economists attributed their country's increasing trade deficit to the yuan's peg, which they said had prevented the Chinese currency's natural tendency to appreciate in value against the dollar.

FRICTIONS OVERSHADOW SURGING TRADE

These have been touchy issues also in China's relations with the European Union and other major trade partners.

China's trade surplus over EU added up to 71.72 billion US dollars in the first 10 months this year, exceeding the 70.12 billion US dollars for the whole 2005.

It has proven a bittersweet year for China, featuring surging trade that is expected to total 1.76 trillion US dollars, more than three times the 2001 volume.

A WTO forecast says China will replace Germany to be the second largest trader in the world next year.

But soaring trade is overshadowed by trade rows over a number of Chinese products including textiles, shoes, TVs and auto parts. The Ministry of Commerce said 23 countries and regions launched 70 anti-dumping, anti-subsidy and safeguard investigations against China in the first three quarters.

By the end of 2005, China had suffered the largest number of anti-dumping investigations in the world for 12 years in a row, according to a WTO report.

China says the situation is likely to continue into the 13th year.

In the wake of the China-US high-level economic dialogue, the US International Trade Commission will hold a hearing later this week to evaluate the alleged harm to American businesses brought by China's exports of coated paper used for magazines, catalogs and advertising inserts.

The United States decided in November to launch an anti-subsidy probe into China's coated free sheet paper, the first anti-subsidy investigation against China in 15 years.

"This is a signal of the US abuse of trade remedies," said Gong Baihua, an official at the Shanghai Consulting Center for WTO Affairs. "It's the first anti-subsidy probe against a country to which the United States has not granted market economy status."

This will cause "double discrimination", he said.

Following the US decision, Chinese Commerce Ministry spokesman Chong Quan said China had provided data and legal evidence proving the investigation was "improper". "The US has violated WTO rules and broken its own laws and regulations," he said.

China's rising exports and lower prices of coated paper were a result of competition on the domestic market instead of subsidies by the state, said Lu Xiaoming, a researcher with Guangfa Securities, a leading Chinese brokerage.

Each year China exports 300,000 to 500,000 tons of coated paper, which includes the high quality glossy paper used for magazines or wrapping paper.

Lu said China's coated paper exports to the United States were valued at 81 million US dollars last year, compared with 320 million US dollars of exports from the Republic of Korean.

The four Chinese paper mills involved have united to safeguard their rights and interests.

Gold East Paper Co. Ltd., based in Zhejiang, a leading manufacturing base in the eastern Jiangsu Province, has hired lawyers to investigate the case in the United States, said a manager in charge of international marketing, who only give his surname as Qu.

Gold East, a 2.12-billion-US dollar company founded in 1997, is among China's largest paper mills with two million tons of annual production. Twenty to 30 percent of its products are sold to the international market.

The company was in the vanguard of China's 2001 anti-dumping proceedings against coated art paper imports from Japan, the Republic of Korea and the United States.

It was the first time Chinese companies have been forced to defend themselves to safeguard their own rights using WTO rules after the country's 2001 accession to the global trading conglomerate.

A ruling by the Ministry of Commerce in 2003 that imposed anti-dumping tariffs on coated art paper imports from the three countries lifted dozens of Chinese paper mills out of the red.

"In the post-WTO transition period, China is doomed to face more trade friction," said Gong Baihua. "This will require government departments to enhance coordination and build up capacities to tackle with crises."

In this process, China will open up wider to the outside world, he added.

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