Trade War Fear Amid US-China Tit-For-Tat

Fears of a trade war have emerged after China filed a complaint with the World Trade Organisation about the United States, just hours before the Obama administration complained about China.

The Chinese government said it filed a case with the WTO in Geneva, challenging US anti-dumping measures against a wide range of Chinese goods including kitchen appliances, magnets and paper.

The US announced a decision to launch a complaint accusing Beijing of improperly subsidising exports worth $1bn (£615m) of vehicles and parts from 2009 to 2011.

Mr Obama planned to make the announcement during a visit to Ohio, which is shaping up to be a battleground state and a key player in the US motor supply chain.

A Chinese statement gave no details of the challenge but said the American anti-dumping measures affected 24 types of products worth $7.2bn (£4.43bn).

The case adds to a flurry of disputes between Washington and Beijing over subsidies and market access.

Previous complaints between the two have included cheap Chinese tyres undercutting US manufacturers and a claim America dumped large shipments of chicken feet into the Chinese food sector.

The tension comes as combined profits of China's state-owned firms fell 12.8% in the first eight months of 2012 from a year earlier, easing from an annual fall of 13.2% seen in the January-July period, the ministry of finance said.

Chinese officials have called on the private sector to help the economy after the weakest pace of growth in more than three years in Q2.

The central bank is widely expected to loosen policy further by cutting interest rates and banks' reserve requirement ratios in the coming months to support growth.

"China should prevent local governments from expanding investment blindly in the name of stabilising economic growth," Gu Shengzhu, a member of the National People's Congress standing committee, said.

"Government investment should be kept moderate to avoid adding to local debt and worsening the situation of over-capacity.    

"We should also prevent investment from flowing into the property sector. Private-sector investment should play the main role in stabilising the economy."

Meanwhile, US secretary of defence Leon Panetta announced plans to extend his visit to China amid an escalation of violent protests against Japanese firms, sparked by a territorial dispute.

Mr Panetta, speaking in Tokyo ahead of the visit, said the US would stand by its security treaty obligations to Japan but not take sides in the protracted row with China over the disputed islands.

"It is in everybody's interest... for Japan and China to maintain good relations and to find a way to avoid further escalation," Mr Panetta said.

Major Japanese corporations have announced a halt to production in China as protests spread.

Honda said it would suspend production on September 18 and 19 at two factories each in the southern China city of Guangzhou and the central city of Wuhan.

"We have decided to suspend production for two days" in the wake of the heightened tensions between China and Japan, a spokeswoman said.

Mazda said it would shut factories for four days, while sources indicated that Nissan would also stop production.

Japan's top general retailer, Seven & I Holdings, also confirmed temporary closure of 13 Ito Yokado supermarkets and nearly 200 of its Chinese 7-11 convenience stores.