FACTBOX-Tensions between China and the U.S.

Sept 6 (Reuters) - Two senior White House advisers, National Economic Council Director Larry Summers and Deputy National Security Adviser Thomas Donilon, are in China for talks covering the two powers' vast and sometimes tense relations. [ID:nN02221793]

Washington and Beijing are drawn together by economic and diplomatic needs, but this year has also brought contention. Here are the main sources of tension:

ECONOMIC TIES, CURRENCY AND DEBT

China and the United States are economically intertwined, but China's huge trade surplus has long frustrated Washington.

In 2009, U.S. imports from China were worth $296.4 billion, and U.S. exports to China $69.5 billion, giving a U.S. deficit of $226.9 billion, according to the U.S. government.

In the first half of 2010, the trade gap with China was $119.5 billion. The U.S. trade deficit with China could total $249 billion for all 2010, the U.S. Congressional Research Service has estimated.

The United States complains that China keeps its yuan currency undervalued, giving its manufacturers an unfair advantage against imports and making Chinese exports cheaper.

China unofficially pegged the yuan CNY=CFXS to the dollar from mid-2008 to mid-2010, so the currency weakened against other trade partners as the value of the dollar slid.

China ended that de facto peg on June 19, and said it would gradually make the yuan more flexible, resuming a policy direction announced in July 2005.

Since then the yuan has weakened by about 0.33 percent against the dollar, after appreciating as much as 0.91 percent on Aug. 9.

The Obama administration welcomed China's currency shift, but also said Beijing should let the yuan strengthen more quickly.

China is the world's biggest holder of U.S. government debt. But Beijing officials have said they worry the worth of these holdings could be eroded by massive U.S. debt and potentially inflationary loose monetary policy.

China has slightly trimmed its holdings of U.S. Treasuries, from $894.8 billion at the start of the year to $843.7 billion in June, according to the most recent data.

TRADE AND INVESTMENT DISPUTES

The two countries have clashed over trade policies, investment rules, and the Chinese regulatory environment, especially control of the Internet.

The U.S. has slapped Chinese products with anti-dumping measures and complaints to the World Trade Organisation.

Trade disputes centre around tyres, steel products, poultry, Chinese tariffs on raw materials exports, and quality and safety concerns over Chinese-made food, toys and other goods that Chinese manufacturers view as a type of protectionism.

U.S. firms in China complain about intellectual property theft, murky regulations, and unfair advantages enjoyed by domestic rivals.

In March, U.S. company Google (GOOG.O) shut its China-based search service Google.cn and began redirecting mainland searchers to a portal in Hong Kong after complaining about Chinese censorship and hacking attacks from within China.

Washington has said China's policies to promote "indigenous" technological innovation could be used as an unfair barrier against foreign companies and products. U.S. companies also want more access to China's government procurement market.

China complains about investment barriers on the U.S. side, citing resource investments blocked on national security grounds and restrictions on purchases of technology that the U.S. deems to have unacceptable potential military uses.

CHINESE TERRITORIAL ISSUES

China has been riled by U.S. positions on territorial issues, including Taiwan, Tibet and, most recently, the South China Sea.

Beijing has never renounced the use of force to reclaim self-ruled island Taiwan, which it considers its sovereign territory. The United States says it wants the two sides to settle the dispute peacefully and is obliged by U.S. law to help the island defend itself.

After Washington went ahead with planned arms sales to Taiwan worth $6.4 billion early in the year, China threatened sanctions on companies making weapons or planes involved in sales.

Exiled Tibetan spiritual leader the Dalai Lama met U.S. President Barack Obama in February, drawing more official denunciations from Beijing. China reviles the Dalai Lama as a "separatist" for seeking self-determination for his homeland.

In past months, Washington and Beijing have quarreled over the South China Sea, where China, Taiwan and several Southeast Asian countries have contending territorial claims.

Beijing says its claims there are a "core national interest"; the U.S. says it has a national interest in freedom of navigation in international waters.

NORTH KOREA AND IRAN

China and the United States work together in stalled talks over North Korea's nuclear weapons programme. But Washington has pressed Beijing to be tougher on the North, which looks to China as its sole main diplomatic and economic supporter.

China wants Washington to be more flexible and accommodating in efforts to renew the stalled nuclear disarmament talks.

China has voted for U.N. Security Council resolutions sanctioning Iran for its disputed nuclear activities, but has also sought to ensure those resolutions do not threaten its trade with Iran, especially oil flows. Washington has pressed China to curtail its economic ties with Iran.

(Writing by Chris Buckley, Ben Blanchard and Lucy Hornby; Editing by Ken Wills and Sanjeev Miglani)