BEIJING, March 21: China must play by the rules in its trade with other countries, US Secretary of State Condoleezza Rice said on Monday, warning that its economic expansion was being watched closely. Ms Rice, who spent two days in China as part of a week-long Asian tour, said that while Washington viewed China’s booming economy as a positive, it was “something everyone is watching and that everybody is concerned about.”

“As the Chinese economy is becoming such a big factor it really is critical that people know that China is acting within the recognized rules of the international economy, that there is an understanding in China of the responsibility that comes with that kind of rapid economic growth,” she said. Ms Rice noted that discussions were underway with China about the need to protect intellectual property rights and revalue its currency, the yuan, repeating the US desire for “a flexible and market-rate floating currency”.

According to US Department of Commerce data, the US trade deficit with China grew 30.9 percent in 2004 to 162 billion dollars, accounting for almost one-quarter of the entire US trade deficit.

China’s trade surplus has been a particular concern among US politicians and policy makers, with American officials claiming the yuan is undervalued, giving Chinese exports an unfair pricing advantage.

EU EMBARGO: Another topic discussed during Ms Rice’s visit was the European Union’s plan to lift an arms embargo against China in place since 1989.

Washington is concerned about China’s military buildup and tensions across the Taiwan Strait which have flared since Beijing passed an anti-secession law allowing the use of force against Taiwan if the latter declares independence. Ms Rice said lifting the ban now would send the wrong signal.

“The lifting of an arms embargo at this time, with continuing human rights concerns and continuing concerns about the military balance, would not send the right signal,” she said.

It “might also serve to alter the military balance in a place where the United States in particular has very strong security interests ...,” said Ms Rice. She asked Beijing to take measures to cool tensions with Taiwan.

“I did talk to my Chinese counterparts about hopefully taking measures in the wake of this anti-secession law, taking measures that would demonstrate a willingness to reduce tensions in the cross-strait environment,” she said.

WARNING TO N. KOREA: Ms Rice warned North Korea of “problems” if it fails to return to nuclear talks, saying that Washington was considering “other options” in dealing with the government In Pyongyang, but she made it clear that a military attack was not one of them.

“Whether the talks can restart depends on North Korea. Everyone is waiting and is ready to have a constructive discussion,” Ms Rice said of six-party talks to halt the North’s nuclear ambitions that have been stalled since last June.

The North insists that it needs a nuclear program to generate energy and Ms Rice said Washington was “prepared to think of their energy needs”, but she reiterated that progress would only be made in a multinational setting.

“We hope North Korea understands that this (six-party talks) is the only way to address their needs,” Rice told a news conference on the last day of her two-day visit to Pyongyang’s closest supporter Beijing. She said “everybody is aware there are other options in the international system”. The options are expected to be sanctions.—AFP