"U.S. politics on China will become unmanageable if China's trade deficit with the U.S. continues to grow," said Baucus, D-Mont., a top-ranking Democrat on the Senate Finance Committee, during a conference in Beijing.

The booming trade deficit between the United States and China has become a major irritant in relations between the two trading partners with Washington threatening to reduce the trade deficit by placing limits on Chinese exports.

The trade deficit exceeded $200 billion last year, a 25 percent increase since 2004, totaling nearly 30 percent of the U.S. trade deficit, Baucus told executives of the U.S.-China Business Council.

Baucus, who characterized himself as a "free trader" and a "friend of China" urged Beijing to take steps to reform its economic policy in order to avert the backlash of U.S. containment policies and congressional threats to raise export tariffs.

Both Sen. Charles Schumer, D-N.Y., and Sen. Lindsey Graham, R-S.C., have threatened legislation that would impose tariffs of 27.5 percent on Chinese exports unless Beijing agrees to dramatically raise the value of its currency. Schumer suggested last month he may bring the legislation forward for a vote in 2006. The joint bill was originally introduced in 2003, but the Bush administration requested a delay in order to resolve the problem through negotiations. Schumer and Graham resubmitted the bill last February.

While Beijing made some movement to revalue its currency by agreeing to float its exchange rate by 2 percent against other currencies, including the dollar, last July, it has remained reticent about disavowing ties to the greenback causing heightened concern among some in Washington.

China's foreign exchange reserve reached about $800 billion at the end of last year and is likely to reach $1 trillion in 2006, making it the world's largest single holder of official reserves. While its total foreign currency reserves are about 40 percent of its gross domestic product, China's official holdings of U.S. dollar assets are about 30 percent of its GDP.

While Baucus said he was not supportive of proposed protectionist measures taken up by Congress, he added that if Beijing refused to make reforms some members of Congress may be tempted to take action against China.

"The United States should not perceive China as a threat," said Baucus. "There is some anti-sentiment in Congress. But there are many of us in Congress who want to work for a more rational policy toward China."

"China has taken some noteworthy steps in recent months to liberalize capital flows, strengthen its financial system, and move toward a market-based exchange rate regime," said Baucus. "Taken together, these reforms create positive momentum and encourage bolder action in the future. China will benefit itself if it takes further steps along that road."

He also called on Beijing to make further changes to advance its financial services liberalization, foster greater domestic demand for goods and services and address intellectual property rights, piracy and counterfeiting.

Raghuran Rajan, economic counselor and director of research at the International Monetary Fund, disputed claims that revaluing China's currency would be the sole solution to improving the U.S. account deficit.

"Some politicians claim that all it would take for the U.S. current account deficit to disappear is for China to revalue the yuan by a substantial amount," said Rajan. "This is nonsense."

According to Rajan, China must undertake a series of reforms, including savings and investment to make a significant impact on the trade imbalance. He argued that a substantial reevaluation would only change who the U.S. imports from, rather than how much it would import.

Growing trade imbalances have emerged, according to Rajan, because of the growing reliance on exports for growth. As a result, governments end up neglecting making structural reforms needed to help strengthen their investment and sustain domestic demand.

According to Chinese custom authorities, exports to the United States grew by $147.6 billion during the first 11 months of 2005, a 31.7 percent rise in the same period in 2004. While U.S. exports to China increased 8.1 percent to $43.9 billion during the same period, making it a trade gap of $103.7 billion.

U.S. figures put the number of Chinese exports to the United States - slightly higher - during the first 10 months of 2005 at $200.6 billion, and U.S. imports to China - slightly lower - at $33.7 billion.

On Tuesday, China's National Bureau of Statistics revised its official annual estimates for economic growth for every year since 1993.

The NBS increased the level of GDP growth by an average of 0.5 percent a year between 1993 and 2005 to reflect census results. It said the economy in 2004 was 17 percent larger than previously reported.

The new NBS figures indicated that economic output in 2003 and 2004 rose respectively by 10 and 10.l percent, compared to previous figures of 9.5 percent for both years. Yao Jingyuan, a chief economist at NBS said that China's consumption was driving higher growth and would continue to in the coming years.

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