The Dragon Bites Back

Even more worrisome to the administration is that the directive seems part of a recent pattern in which Chinese officials issue new regulations aimed at favouring Chinese industries over foreign competitors, despite efforts by Treasury Secretary Henry M. Paulson Jr. to ease economic tensions.

8220;There is clearly a growing economic nationalism in China that is leading to discrimination against foreign investors in pillar sectors of the economy,8221; said Myron Brilliant, vice president for Asia at the United States Chamber of Commerce.

The Chinese actions and the administration8217;s concerns threaten to roil the atmosphere when Paulson goes to China in early December with other cabinet members in another round of the 8220;strategic economic dialogue8221; that he began in September 2006. After seeking to defuse lingering trade disputes with China for the last 15 months, Paulson instead may have to tamp down fresh outbreaks.

Administration officials say the recent furore over the safety of Chinese food, toys, toothpaste and other products has taken its toll in the economic relationship, and they hope Paulson8217;s visit in December coincides with some new agreements to improve safety standards in both countries.

The American medical device industry, according to some China experts, may be a victim of retaliation by some Chinese authorities because of complaints by the United States over unsafe and dangerous exports of Chinese products.

These experts say China8217;s consumer product safety authority has been discredited by the recent disclosures of tainted products. That appears to have opened the door for a separate customs bureaucracy, which issued the new regulation that worries the Bush administration, to grab power from a rival agency.

8220;I can8217;t tell you how many companies have come up to me 8212; software, chemicals, autos 8212; who say they8217;re concerned about the trend,8221; said a senior administration official, speaking anonymously to avoid antagonising the Chinese. 8220;We8217;re very troubled about the long-term direction on some of these policies.8221;

The American concerns are shared in Europe, which like the United States, is growing more upset about the trade deficit with China. 8220;What we8217;re seeing are growing industrial interests lobbying state authorities in China and giving them preferential treatment,8221; Peter Mandelson, the top trade envoy of the European Union, said in an interview. 8220;The result is clear discrimination against foreign companies.8221;

There has been little progress on Paulson8217;s top priority of getting China to let the value of its currency rise, a step that would make imports from China more expensive and exports to China cheaper, and there are worries that the dialogue will increasingly be seen as useless.

The medical device industry is one of several that seems to have been the target recently, administration officials say. The fear in Washington is that the growth of sales by big manufacturers like Medtronic, Johnson 038; Johnson, and Boston Scientific, which have doubled since 2002, could be set back.

Beyond the medical device sector were many other examples cited in a report in September by the Chamber of Commerce, drawing on the experience of businesses operating in China. Among the examples cited are standards for wireless technology, mobile phones and mobile phone batteries that favor Chinese companies, as well as antimonopoly laws that exempt Chinese government enterprises.

Even those skeptical of the results of Paulson8217;s initiative say it has helped defuse some of the tension between the nations. 8220;If you look at the problems of the last few months, like the product safety issue, the strategic dialogue has served as a mechanism for dealing with them,8221; said Jeffrey A. Bader, director of the China programme at the Brookings Institution.