SHANGHAI, Dec 31: New financial controls imposed by China on its traders are cutting imports and threaten to worsen tensions with its major trading partners, reports AP.

Imports have fallen so sharply that even though exports barely grew in 1998 because of the Asian crisis. China's trade surplus rose 11 per cent to $45 billion, according to official figures released Wednesday.

The new rules, imposed in July to protect Chinese foreign currency reserves, make it harder for companies to get import financing and licenses.

China's currency, the yuan, doesn't trade internationally, and companies are allowed to buy foreign currency only for approved imports. Dozens of people have been prosecuted in recent months for using fake import papers to obtain millions of dollars in foreign currency.

Chinese officials defend the new rules as a way to stop smuggling and illegal currency trading.

The new controls will slow imports in the short term, but in the long term they will restore the market". Jia Jun. an official of the Ministry of Foreign Trade and Economic Cooperation, told Dow Jones Newswires.

The restrictions threaten to fuel complaints by trading partners already angered at Chinese quotas and high tariffs 1 that block most imports of cars

and consumer goods.

US officials have warned that the trade deficit with China — projected at $60 billion in 1998 and $70 billion in 1999 — was politically untenable.

"These steps are definitely protectionist actions that will cause a reaction here," US Sec-

retary of Commerce Richard Daley warned at a news conference Dec 18 in Washington.

For all but the biggest Chinese firms, banks have begun demanding 100 per cent payment in advance for letters of credit — the standard guarantee for trade finance. Last year, they would accept lust 30 per cent in advance, with real estate pledged as collateral for the rest.

Chinese traders complain that even with financing, they often can't get import licenses. The government has banned the former widespread practice of borrowing licenses from large state trading companies.

Beijing says it is taking steps to speed up trade approvals with a new computerised network that also is intended to catch forged documents. The system is to take effect Friday, according to state media.

And for the first time, a handful of private companies have been allowed to apply for trading licenses in a significant step away from the state-dominated trading system.

But trade officials say approval is moving slowly because of the complexity of the application process.

Trade analysts say the biggest impact will be not on small consumer goods such as television sets, but on bulk commodities such as metals, crude oil. fertiliser and sugar. China wants to protect its own commodity producers from falling world prices.