Factbox: Key issues in China-U.S. trade

(Reuters) - President Barack Obama will nominate Commerce Secretary Gary Locke as the next U.S. ambassador to China, putting forward another seasoned politician to help steer often contentious ties.

Here is a snapshot of some of the problem areas in the U.S.-China trade relationship:

U.S. TRADE DEFICIT, CHINA'S SURPLUS

A major driver of trade friction between the world's two largest economies is the U.S. trade deficit with China.

Both countries have pledged to work on correcting "global imbalances," but the U.S. trade deficit with China in 2010 rose to $273.1 billion, up from about $226.9 billion in 2009.

That 20.4 percent increase in the U.S. trade shortfall with China was despite China's shrinking total trade surplus of $183 billion last year, down from $196 billion in 2009 and a record $295 billion in 2008.

The 2010 U.S. trade deficit with China surpassed the previous record $268 billion set in 2008.

CURRENCY

Many U.S. lawmakers believe China's currency is significantly undervalued, giving Chinese companies an unfair price advantage in international trade. China loosened the yuan from a nearly two-year peg to the dollar in June, and since then it has risen about 4 percent in value.

Chinese official have said the yuan will continue to appreciate but in a gradual and controllable manner.

The U.S. has tried to forge alliances with other economic behemoths concerned about the value of the yuan. But U.S. Treasury Secretary Timothy Geithner's efforts to get Brazil to back a joint initiative fell on its face when Brazil's Finance Minister Guido Mantega said Brazil was equally concerned with the weakening of the U.S. dollar.

A bipartisan group of 101 U.S. lawmakers in the House of Representatives revived efforts in February to pass legislation aimed at pressuring China to let the yuan appreciate.

A similar proposal stalled last year, but if successful would allow the Commerce Department to treat currencies deemed to be undervalued as an illegal subsidy under U.S. trade law.

PIRACY AND COUNTERFEITING

The International Intellectual Property Alliance, which represents U.S. copyright industry groups, has estimated U.S. trade losses in China due to piracy at $3.5 billion in 2009. Meanwhile, U.S. customs officials say 80 percent of the fake tennis shoes, clothing, luxury bags and other goods they seize each year at the border come from China.

China responded to U.S. complaints with a six-month campaign that began in November aimed at counterfeit books, music, DVDs and software. China has promised "concrete results" from the latest crackdown, but U.S. groups say a sustained effort is necessary to achieve real results.

Locke said in February that the U.S. was waiting to see if Chinese officials would meet pledges to increase government budgets for the purchase of licensed U.S. business software.

Microsoft and other members of the Business Software Alliance in the United States complain that nearly 80 percent of the software installed on PCs in China is pirated.

INDIGENOUS INNOVATION

Big U.S. companies such as General Electric are worried that China's "indigenous innovation" policies could make it more difficult for them to compete in China. The regulations are intended to promote innovation within China and reduce its dependence on foreign technology and companies.

U.S. industry fears China is using discriminatory policies in areas ranging from government procurement to technical standards and tax policy to promote its state-owned enterprises at the expense of foreign firms.

U.S. companies are also worried that under indigenous innovation, they would be forced to transfer development and ownership of intellectual property to China to participate in the country's huge government procurement market.

Chinese President Hu Jintao said during his state visit to Washington in January that China would not discriminate against products made with foreign technology when awarding lucrative government procurement contracts.

Still, U.S. and other foreign firms are waiting to see if those promises will be kept.

TRADE DISPUTES

The United States in February asked the World Trade Organization to rule on two disputes with China -- one on restrictions Beijing has imposed on U.S. specialty steel exports and the other on access to its credit and debit card payments market.

CLEAN ENERGY

The U.S. Trade Representative has said that Chinese manufacturers of wind turbines and components may have received several hundred million dollars in government grants that violate trade rules by requiring Chinese manufacturers to use only Chinese-made parts and components.

Critics also charge that China's momentum in the solar industry has been created by generous state subsidies that give Chinese companies an advantage over other manufacturers and restrictions that keep foreign companies from competing for China's domestic projects.

RARE EARTHS

China, which controls 97 percent of currently available global rare earth supplies, has alarmed its trading partners by restricting exports of the minerals that are used in a variety of clean energy and high-industry technologies.

Beijing cut rare earths export quotas by 40 percent last year and again by 35 percent over the first half of 2010 for the first half of 2011.

The United States has said it could complain to the WTO about the restrictions, but China has defended its restrictions as measures to manage supplies and control pollution associated with rare earth production.

INVESTMENT

Beijing complains that Washington, while pushing for greater access for U.S. firms in the Chinese market, imposes unwarranted restrictions on Chinese investment in the United States, often citing national security concerns. China says it wants a level playing field for its investment into the United States, saying that its intentions are benign and will benefit the U.S. economy and create jobs.

In February, China's Ministry of Commerce said Washington had engaged in obstruction and interference in investment activities when the outcome of a U.S. government foreign investment review forced Huawei to sell assets it bought from 3Leaf, a small U.S. company.

Three years ago, Huawei had to pull back from a bigger proposed investment in 3Com, in similar circumstances. Meanwhile, U.S. companies complain China restricts investment opportunities in many services sectors.

EXPORT CONTROLS

China says it would buy more from the United States if not for overly restrictive U.S. controls on high-technology goods. The United States says China's argument is overstated. But it is in the process of reforming its export control system, which could lead to increased sales of some less-sensitive items.

MARKET ECONOMY STATUS

China also wants the United States to grant swift recognition that China is a market economy, which would make it harder for the United States to declare that Chinese goods are dumped. As long as China has no recognition as a market economy, trade partners can compare its products with those of other nations with different cost structures for labor or transport, when assessing whether products have been dumped.

The United States, which granted Russia market economy status 10 years ago, says it is required by law to weigh a number of criteria before giving a country that designation. Those include whether a country's currency is convertible and its policies on collective bargaining and investment.

(Writing by Doug Palmer and Michael Martina; Editing by Alex Richardson)