* Beijing suspends Sino-U.S. military exchanges
* United States says sales contribute to security
* China says U.S. arms companies could be penalized
* Weapons needed to bolster defense - Taiwan (Updates with Chinese foreign minister comment)
By Jim Wolf and Ben Blanchard
WASHINGTON/BEIJING, Jan 30 (Reuters) - The United States said on Saturday it regretted China’s announced cuts in bilateral contacts and its plans to punish U.S. companies involved in a $6.4 billon arms package for Taiwan.
While China said the arms sales “damaged” its national security and reunification efforts with Taiwan, the Obama administration defended the package sent to the U.S. Congress on Friday as boosting regional security.
“We regret that the Chinese government has announced that it plans to curtail military-to-military and other security-related exchanges and take action against U.S. firms that supply defensive articles to Taiwan,” said P.J. Crowley, the State Department’s chief spokesman.
“We believe our policy contributes to stability and security in the region,” he said.
China opposes all U.S. arms sales to Taiwan, which it regards as part of its territory. For the first time, it said would impose unspecified sanctions on unnamed companies involved in arms sales to Taiwan and scale down contacts with the United States unless it canceled the new arms package.
China’s Foreign Minister Yang Jiechi said the United States had “damaged China’s national security and great task of reunification (with Taiwan),” the official Xinhua news agency reported early on Sunday.
Yang, traveling in Cyprus, said China and the U.S. had held many discussions about the arms sales, but the U.S. had ignored China’s demand that the sales be stopped.
The United States should “truly respect China’s core interests and major concerns, and immediately rescind the mistaken decision to sell arms to Taiwan, and stop selling arms to Taiwan in order to avoid damaging broader China-U.S. relations,” Yang said.
Among the sales, subject to congressional review, would be Black Hawk utility helicopters built by Sikorsky Aircraft, a unit of United Technologies Corp. (UTX.N); Lockheed Martin Corp (LMT.N)-built and Raytheon Co. (RTN.N)-integrated Patriot missile defenses; and Harpoon land- and sea-attack missiles built by Boeing Co. (BA.N). See factbox [ID:nN30152939]
Representatives of Sikorsky, Raytheon and Boeing either had no immediate comment or did not respond to questions left for them. A Lockheed spokesman referred a caller to the Defense Security Cooperation Agency, which formally announced the sales plans. An agency representative could not immediately be reached.
Boeing, the No. 1 U.S. exporter, has big commercial interests in China, the world’s most populous market, including commercial aircraft sales. United Technologies also has significant sales in China, where it sells Carrier brand heating and air-conditioning, Otis elevators and escalators and other products.
The other arms makers appear to have more limited exposure to Chinese sanctions.
The dispute deepens rifts between the world’s biggest and third-biggest economies. Although they are cooperating on counter-terrorism, nuclear arms control, climate change and other major security issues, Beijing and Washington are at odds over trade as well as China’s tight control of its currency, dissent in Tibet and the Internet.
Since 1949 when Nationalist forces fled to Taiwan after losing the mainland to Communist rebels, Beijing has demanded Taiwan accept unification, threatening to use force if necessary.
“The United States will shoulder responsibility for the serious repercussions if it does not immediately reverse the mistaken decision to sell weapons to Taiwan,” Chinese Vice Foreign Minister He Yafei told U.S. ambassador to China Jon Huntsman in comments reported on the ministry’s website (www.mfa.gov.cn).
China’s Defense Ministry said military exchanges would be put on hold and Beijing postponed vice ministerial-level talks on security, arms control and non-proliferation.
“China will also impose corresponding sanctions on U.S. companies that engage in weapons sales to Taiwan,” the Foreign Ministry said, without naming any companies. A spokesman for the Chinese embassy in Washington did not immediately respond to a request for comment.
But Beijing has shown no sign of trying to use its huge pile of U.S. dollar assets to pressure Washington, or impose broader trade penalties — both steps that would undercut China’s own economic strength.
The feud could damage broader diplomacy between the two permanent members of the U.N. Security Council. Washington has sought China’s backing in its nuclear standoffs with Iran and North Korea and in fighting climate change, and is preparing for a world summit on nuclear weapons in April.
China’s official Xinhua news agency said in an English-language commentary that the arms sales “will cause seriously negative effects on China-U.S. exchanges and cooperation in important areas, and ultimately will lead to consequences that neither side wishes to see.”
The sales in effect constitute the second half of a package that former President George W. Bush had approved as early as 2001. The notice of a potential sale is required by law and does not mean a deal has been concluded. Congress has 30 days to block such sales, though it has never done so.
Taiwan’s President Ma Ying-jeou told reporters the weapons would give “Taiwan more confidence and a sense of security to go forward in developing cross-Strait relations”.
Under Ma, Taiwan has sought to ease tensions with the mainland and expand economic ties. But it worries China could develop an overwhelming military advantage.
Taiwan says China has 1,000 to 1,500 short-range and mid-range missiles aimed at the island.
U.S. officials have said Taiwan, which lags China in the balance of military power, needs updated weapons to give it more sway when negotiating with Beijing.
In coming months, President Barack Obama may meet the Dalai Lama, the exiled Tibetan leader whom China calls a dangerous separatist. Beijing is sure to condemn such a meeting.
Chinese President Hu Jintao is expected to visit the United States later this year. Both sides praised an Obama visit to China in November as showing deepening cooperation.
The two countries traded angry words about Internet policy after the search engine giant Google Inc. (GOOG.O) this month threatened to shut its Chinese google.cn portal and pull out of China because of censorship and hacking attacks. (Additional reporting by Ralph Jennings in Beijing; Kelvin Soh in Taipei; Paul Eckert, Adam Entous and Arshad Mohammed in Washington; editing by Andrew Roche, Paul Simao and Anthony Boadle)