Washington, May 27:

US-China ties are headed for turbulence as combative US lawmakers threaten Beijing with punitive trade sanctions that could draw the ire of the Chinese leadership.

A week of high-level talks in Washington fai-led to end their bigge-st dispute, China’s undervalued currency, opening prospect of a trade war between the world’s richest and the most rapidly growing nation, analysts said.

The Pentagon warned on Friday that cash-flush China was militarising under an opaque budget and that Beijing’s ballistic nuclear missiles could now strike the US. The Bush administration seems to have taken a more aggressive trade stance, while majority Democrats, and many Republicans in Congress, discuss passing, not just proposing, anti-China bills.

“Previous instances of US protectionist rhetoric have ended in little action, but the risks of actual action are a bit higher this time,” warned Goldman Sachs analyst Alec Phillips.

Protectionist sentiment in Washington is high despite low US unemployment and inflation and record equity prices, which wo-uld normally stymie such sentiment, he sai-d. “This raises two ris-ks. First, the Congress, which has become increasingly hostile tow-ard trade, could impo-se policies that could sour the US-China economic relationship.”

“Second, a softer labour market, in particular, might raise tensions beyond their already elevated levels today,” Phillips warn-ed. Talks led by Chinese vice-premier Wu Li and US treasury secretary Henry Paulson, as well as subsequent discussions between the Chinese leader and US lawmakers, failed to end concerns over the yuan. Lawmakers say China undervalues the yuan, making US-bound exports cheaper and fueling the US-China trade deficit, at $232.5 billion last year.

Despite heavy US dependence on China, some lawmakers want trade sanctions, including a possible a 20 per cent across-the-board tariff on Chinese goods. Anti-China tra-de bills being drafted in Congress ‘could ultimately disrupt bilateral trade flows, and more importantly, capital inflows from China.’

State firms post profit

BEIJING: Major state-owned enterprises in China saw their profits, a main source of funding for new investments, rise by nearly 35 per cent in the first four months of the year. The top 424 state companies reported combined profits of $45 billion in the period from January to April, up by 34.7 per cent from the same period a year ago. The drastic increase could spell trouble for the government’s attempts to rein in investment growth by curbing loans to enterprises, as the companies are now in a better position to instead rely on retained profits. — AFP