FACTBOX-Sources of tension between China and U.S.

Feb 1 (Reuters) - Chinese state media laid into the United States on Monday after the Obama administration unveiled its first arms package for Taiwan, a move that has already prompted China to put sanctions on the defence firms involved.

With the two giant nations joined at the hip economically, Sino-U.S. tensions are unlikely to escalate into outright confrontation, but could make cooperating on global economic and security issues all the more difficult.

Here are the main sources of tension:

CURRENCY AND DEBT

The United States complains that China keeps its currency artificially undervalued, thus unfairly helping exporters.

China has unofficially pegged the yuan to the dollar since mid-2008, meaning its currency has weakened against other trade partners as the value of the dollar has slid. Beijing is concerned the value of its dollar holdings could be eroded by massive debt issuances to fund the U.S. stimulus. China held $798.9 billion in U.S. Treasuries at end-October, displacing Japan in September 2008 as the largest foreign holder.

U.S. lawmakers want to take action on the yuan, but U.S. law makes it hard to investigate alleged subsidies.

Rash U.S. moves which threaten China's massive purchases of U.S. debt, and its funding of the U.S. deficit, are unlikely.

TRADE AND INVESTMENT

A World Trade Organisation panel is judging U.S. duties on Chinese tyres, after the United States for the first time imposed safeguard duties agreed to when China joined the WTO.

Other trade disputes centre around steel products, poultry, Chinese tariffs on raw materials exports, and quality and safety concerns over Chinese-made food, toys and other goods that Chinese manufacturers view as a type of protectionism.

U.S. firms investing in China complain about intellectual property theft, murky regulations, corruption and unfair advantages enjoyed by domestic rivals.

China complains about investment barriers on the U.S. side, citing resource investments blocked on national security grounds.

In 2008, U.S. exports to China totaled $69.7 billion, but were dwarfed by $337.8 billion in exports from China to the United States, now Beijing's second biggest trade partner.

DIPLOMATIC AND MILITARY INFLUENCE

As China has grown to the world's third-largest economy, it is gaining greater clout, especially in Asia and Africa.

It is also upgrading its military and space capability, and Washington has said Beijing should be more open about its defence spending and strategic intentions.

China is wary of the United States' global military strength. U.S. patrols in waters China considers its exclusive zone led to minor incidents last year. In 2001 a U.S. spy plane was forced to land in China after colliding with a Chinese fighter.

China and the United States work together in talks over North Korea's nuclear weapons programme. China worries that if its neighbour collapses refugees could destabilise northeast China.

Washington also wants China to put stronger pressure on North Korea, as well as Iran, over their nuclear activities.

Taiwan remains a sore point. Beijing has never renounced the use of force to bring self-ruled and democratic Taiwan, which it considers its sovereign territory, under its rule.

Washington's arms sales to Taiwan anger China, but the United States is legally obliged to help the island defend itself.

Another area of contention is Tibet, and its exiled spiritual leader the Dalai Lama, who makes frequent visits to the United States. He has yet to meet U.S. President Barack Obama.

INTERNET FREEDOMS

U.S. Internet firms have fared poorly in China, which censors content and blocks many foreign websites, including popular social media such as Twitter and Facebook, and YouTube.

On Jan. 12, Google Inc said it was no longer willing to censor Internet searches in China, and might pull out of the country after a sophisticated cyber-attack.

U.S. Secretary of State Hillary Clinton on Jan 21 called on China to openly and thoroughly investigate the attacks and made a broad case for Internet freedom (Writing by Ben Blanchard; Editing by Bill Tarrant)