China satellite test justifies trade controls: U.S. official

BEIJING (Reuters) - China's missile strike against one of its own satellites underlined why Washington was wary of Beijing's military ambitions and planned to refine controls on sensitive American exports, a U.S. trade official said on Friday.

Beijing's January 11 demonstration of its ability to pulverize a satellite, openly confirmed by China only this week after anger from Washington, showed China's military modernization was too murky, Assistant Secretary of Commerce Christopher Padilla told reporters in Beijing.

"None of this will lessen the international anxieties about the growth in China's military capabilities," Padilla said of the satellite test. "Even as we work to encourage China's peaceful development and civilian trade, we must also hedge our relations with China."

The United States is eager to narrow its yawning trade gap with China. Commerce Department data due out next month is expected to show the U.S. trade deficit with China hit a record of $230 billion to $240 billion in 2006, topping $202 billion in 2005.

But Washington is also worried that China's program to build or buy advanced ships, missiles, and other weapons could eventually catch up with U.S. military might.

Padilla has been visiting China to consult officials and U.S. business executives as he tweaks draft rules intended to tighten some export controls to the booming Asian power, while relaxing requirements for some companies and products.

The proposed rules drew loud criticism from many U.S. technology exporters. They called them unwieldy and costly, and said they would give European and other competitors an advantage without improving U.S. security.

The Bush administration has said it will listen to companies' concerns before the final rules are issued in coming months.

But some critics had exaggerated the effect of current U.S. export restrictions, Padilla said. The new rules would smooth legitimate civilian trade while deterring diversion of advanced computers, materials and other technologies to China's military, he said.

"The argument that U.S. companies are being disadvantaged and sales are being made by European competitors is not borne out by the statistics," he said. "This is not some futile attempt to hold back the tide of economic globalization."

A proposed reform to allow civilian Chinese companies to win status as "trusted customers" would cut red tape, allowing the companies to repeatedly buy otherwise restricted U.S. products without applying for a license each time, Padilla said. It now takes an average 56 days to process each license application to export controlled items to China, he added.

Padilla said he could not give an accurate forecast of the value of deals affected by the proposed relaxation. Initially, he said, it could "potentially be worth more than a hundred million dollars."

In the 2006 fiscal year that ended in September, the U.S. Commerce Department's Bureau of Industry and Security approved controlled exports to China for goods worth $2.4 billion, according to the Bureau's annual report.

But Padilla said U.S. security worries about China meant Washington had to continue balancing commercial interests with military concerns. "There is a certain duality inherent in our policy with China," he said.