Protectionist din accompanies China Congress

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BEIJING, Oct 21 (Reuters) No country has prospered more than China by opening up to trade and investment, so a nationalist hum for protection on the sidelines of the Communist Party Congress that ended today was all the more striking.

China's manufacturing juggernaut might seem unstoppable to hard-pressed US and European firms, but some in China see things quite differently: they worry about the inroads foreigners are making into the world's fourth-largest economy.

They might not be a majority but grumbling from a number of businesses, from airlines to equipment makers, contrasted sharply with President Hu Jintao's vow to keep opening the economy and seek ''win-win'' cooperation between Chinese and foreign firms.

''Why is the Chinese dairy industry in the state it's in now?'' asked Pan Gang, chairman of dairy firm and Olympics sponsor Yili, discussing the reasons behind a price crunch that analysts say leaves some 40 per cent of dairy farmers in the red.

''Because many of the foreign firms are only looking for short-term gain when they come here,'' Pan told Reuters. ''When the foreign companies come in, they just take away the milk.'' To be sure, the overwhelming majority of policy makers argued that China cannot backtrack on market reforms.

''Opening up brings new problems and new risks, but we cannot control the risks -- it is not possible to control them -- by shutting the door again,'' Hu Xiaolian, head of the State Administration of Foreign Exchange, said during one session.

OPEN SKIES? Still, interviews with a range of corporate chiefs who are also Party members highlighted not just their rapidly growing influence -- entrepreneurs were officially welcomed into the Party only five years ago, though many had joined before -- but how emboldened they are to lobby for their own interests.

Li Jiaxiang, chairman of Air China, said Beijing needed to keep a check on the opening of the sector so that it can cultivate one or two globally competitive ''super-carriers''.

''If foreign investors get control of the big domestic airlines, it will be very difficult to restructure the industry in the future,'' Li said in an interview.

Yang Yuanyuan, head of the civil aviation regulator, struck back, saying he had been successfully balancing the best interests of consumers, airlines and the country as a whole.

''If our airlines want to become strong, they can only do so against the backdrop of international competition,'' Yang told Reuters. ''If they rely on protection, they can't become strong.'' The stakes of such arguments are very real for Western companies and governments -- and for the global economy.

The more the nationalist argument wins out, the more tense Beijing's trade relations with the United States and European Union will become, potentially sparking spiralling protectionism.

FATE OF THE NATION What has been clear for months is that, faced with a flood of cash from its bulging trade surplus and inflows of foreign direct investment, China is becoming increasingly picky about how it uses FDI.

Jiang Kaiwen, chairman of Laiwu Steel Group, said his firm had sought a foreign partner but was blocked.

''The government is tightening foreign investment in polluting industries; it needs to be environmentally friendly, and so forth,'' Jiang told Reuters.

Comments by Guo Shuqing, chairman of China Construction Bank, highlighted the tension that the open-versus-closed debate is generating among businessmen and policy makers.

Guo is tipped by insiders as a candidate to lead the central bank should its current governor, Zhou Xiaochuan, lose his job.

In one session, Guo spoke impassionedly of the need to press on with industrial restructuring, despite worries about job cuts.

''This is the most critical time, right now. I think the entire country, the entire Party, from top to bottom, needs to unify their idea on this point,'' Guo said.

''Industrial adjustment and upgrading will decide the future of China's economy and development -- even its fate.'' REUTERS SYU BD1158

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