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Edition: U.S. Article Comments (1) Slideshow Video Save Email Print Reprints Most Popular Most Shared Heavy rain in Miami forces changes in Super Bowl plans 01 Feb 2010 UPDATE 1-US missile test mimicking Iran strike fails 01 Feb 2010 U.S. seeks calm as China fumes over Taiwan arms | Video 01 Feb 2010 Grammy TV audience biggest in six years 01 Feb 2010 U.S. expanding missile defenses in Gulf 31 Jan 2010 Big banks' risky trading should be curbed: Volcker 01 Feb 2010 Dealmaking back in fashion, as CEOs buy growth 01 Feb 2010 Herbal remedies, heart drugs don't mix: review 01 Feb 2010 Heavy rain in Miami forces changes in Super Bowl plans 01 Feb 2010 Bill Gates promises $10 billion for vaccines 29 Jan 2010 BUDGET 2010 Deficit soars amid job spending isking public anxiety over spending, President Barack Obama projected the budget deficit at a fresh record in 2010 as he battles double-digit unemployment before tightening finances in later years. Full Article Small business is in, the moon is out Focus on jobs, spending cuts and war Analysis: For Congress, plenty to hate U.S. seeks calm as China fumes over Taiwan arms Ben Blanchard and Paul Eckert Mon Feb 1, 2010 10:24pm EST Factboxes Factbox: How China's anger could hurt ties with the U.S. Mon, Feb 1 2010 Factbox: Sources of tension between China and U.S Mon, Feb 1 2010 Related News Q+A: Why is China so sensitive about Taiwan? Mon, Feb 1 2010 China warns Obama not to meet Dalai Lama Mon, Feb 1 2010 Related Video China angry over U.S. arms sales Mon, Feb 1 2010 US-Taiwan arms deal angers China < 1 / 5 > View Full Size BEIJING/WASHINGTON (Reuters) - Chinese state media blasted the United States on Monday for a planned $6.4 billion arms package for Taiwan but U.S. officials said they hoped the flap would be temporary and not derail cooperation. World | Barack Obama The arms sales, the latest by the United States but the first by the Obama administration, has added to a litany of strains between the world's biggest and third-biggest economies, including the value of China's currency, trade protectionism, Internet freedoms and Tibet. The official China Daily said U.S. weapons sales to the self-ruled island, which China claims as its own, "inevitably cast a long shadow on Sino-U.S. relations." "China's response, no matter how vehement, is justified. No country worthy of respect can sit idle while its national security is endangered and core interests damaged," the English-language newspaper said in an editorial. White House spokesman Robert Gibbs said the U.S.-China relationship was important and "I don't think that either country can afford to simply walk away from the other." Gibbs said any sanctions against the companies involved in the arms sales, a move threatened by China for the first time, would not be warranted. The United States switched diplomatic recognition from Taipei to Beijing in 1979, recognizing "one China," and says it wants the two sides to settle their differences peacefully. The United States remains Taiwan's biggest backer and is obliged by the 1979 Taiwan Relations Act to help in the island's defense . State Department spokesman P.J. Crowley said the arms sale decision reflected "long-standing commitments to provide for Taiwan's defensive needs." "We will, as always, pursue our interests but we will do it in a way that we think allows for positive and cooperative relations with China," he told reporters. U.S. Defense Secretary Robert Gates defended the arms sale, telling reporters he hoped China's decision to protest by curtailing bilateral military contacts would be temporary and that he still planned to visit China later this year. "Stability is enhanced by contact between our military and a greater understanding of each other's strategies, so I hope that if there is a downturn, that it will be a temporary one and that we can get back to strengthening this relationship," Gates said. MISSILE BUILDUP CONCERNS The Pentagon's 2010 Ballistic Missile Defense Review Report to Congress, published on Monday, said the United States was concerned and closely monitoring China's missile buildup and increasingly advanced capabilities in the Pacific region. "One regional trend that particularly concerns the United States is the growing imbalance of power across the Taiwan Strait in China's favor," the report said. The report said U.S. defense policymakers "remain committed to a relationship that is positive, cooperative, and comprehensive and do not believe a hostile or adversarial relationship with China is by any means inevitable." Beijing considers Taiwan a breakaway province that must accept eventual unification, by force if necessary. China's ruling Communist Party controls the country's media and uses them at sensitive times to amplify its message. Venting intense anger over the arms sales, Chinese Internet users called for a boycott of top U.S. exporter and plane-maker Boeing Co and other companies supplying parts. China has for years opposed U.S. defense sales to Taiwan, which has been separated from mainland rule since 1949 and was a Japanese colony from 1895 to 1945. But for the first time, Beijing sought to pressure the United States by threatening to formally punish companies whose arms are involved in the arms package, which was announced on Friday. "China has no room whatever for compromise on this issue," said a commentary in the Liberation Army Daily, the mouthpiece of the country's military, adding that Chinese armed forces were ready for "resolute struggle" over Taiwan. "It is entirely reasonable to impose corresponding sanctions on U.S. companies involved in arms sales to Taiwan." U.S. arms exporters declined to comment on the Chinese threat and White House spokesman Gibbs said: "I don't think those (sanctions) would be warranted." Walter Lohman, director of Asian studies at the Heritage Foundation, said China's response was "mostly noise" and probably designed to deter Washington from considering selling F-16 advanced fighter jets to Taiwan. "Partly what they're doing now is trying to scare us off the F-16 sale, by making a big deal out of this one," he said. CHINESE FACE LIMITED OPTIONS Chinese shares appeared unmoved but trading in offshore one-year dollar/yuan non-deliverable forwards (NDFs) implied slightly slower appreciation for the yuan over the next 12 months. Dealers said the NDFs shift was mainly driven by the dollar's global strength but the Sino-U.S. tension contributed. China's top leaders, President Hu Jintao and Premier Wen Jiabao, have not publicly commented on what they have said is their nation's topmost issue, suggesting they want to keep some leeway in dealing with Washington. Despite Beijing's strident words, options for punishing the United States were limited, said Drew Thompson, director of China Studies at the Nixon Center, a thinktank in Washington. "They don't have a lot of leverage, and that's a source of frustration for them," he said. "It's hard to picture what they could do that's anything other than symbolic." Sanctions on Boeing could give its rival, Airbus, more leverage in negotiations with Chinese buyers, Thompson said. U.S. officials have said Taiwan, which lags China in the balance of military power, needs updated weapons to give it more sway with Beijing, which Taiwan says has more than 1,400 short- and mid-range missiles aimed at the island. Beijing would postpone or partially halt some military contacts with the United States, including visits planned for this year such as Gates's trip, Xinhua news agency said. China also said the dispute will damage cooperation with the United States over international issues. Washington has sought stronger Chinese support over several hotspots, chiefly the nuclear ambitions of Iran and North Korea. "It's difficult to take what are global problems and use them as a tool to vent frustration over a bilateral issue," Thompson said of China's options. "They risk isolating themselves pretty badly." (Additional reporting by Chris Buckley in Beijing; Lu Jianxin in Shanghai; Yoko Kubota in Tokyo; Adam Entous, Jim Wolf, Arshad Mohammed and Ross Colvin in Washington; Editing by John O'Callaghan) World Barack Obama Comments See All Comments (1) | Post Comment Feb 02, 2010 If anyone knows about the history between Taiwan and China, then they would know Taiwan issues will never resolve with China, and China will always knee-jerk about Taiwan as soon as anyone appears to align with Taiwan. China wants Taiwan and Taiwan will never ever give it up. Support for Taiwan flys in the face of communist party rules. China is still a communist country and the west trades with it full on!!!??? Realtime Report As Abusive See All Comments (1) Add a Comment More from Reuters Big banks' risky trading should be curbed: Volcker WASHINGTON (Reuters) - White House adviser Paul Volcker will urge Congress to curb the risks taken by large banks to help prevent them from being treated as "too big to fail," according to testimony obtained by Reuters on Monday. Asia shares rebound; resource stocks surge | Video Jan retail sales seen up, clues sought on Q1 Boeing sees aircraft order book shrinking Obama's 2010 budget: deficit soars amid job spending | Video Nikkei rises 1.6 percent on yen and Toyota » More Top News ANALYSIS: Clampdown fears stalk China Global markets got jittery when China tightened its lending, but investors are ignoring one important thing. Full Article What's next for China monetary policy? Five risks to watch in China Fretting over inflation in Asia Global Markets The powers driving India Inc. One's a media baron who took on Rupert Murdoch -- and won. Another founded a company ranked with Facebook in global influence. Meet the business icons of India. Commentary India factories buzzing, recovery intact India © Copyright 2010 Thomson Reuters Editorial Editions: Africa Arabic Argentina Brazil Canada China France Germany India Italy Japan Latin America Mexico Russia Spain United Kingdom United States Reuters Contact Us Advertise With Us Help Journalism Handbook Archive Site Index Video Index Analyst Research Mobile Newsletters RSS Podcasts Widgets Your View Labs Thomson Reuters Copyright Disclaimer Privacy Professional Products Professional Products Support Financial Products About Thomson Reuters Careers Online Products Acquisitions Monthly Buyouts.com Buyouts Europe: Buyouts Conferences: Venture Capital Journal EVCJ International Financing Review International Securitisation Report Project Finance International PEhub.com PE Week Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

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