By Chris Buckley
BEIJING (Reuters) - China stepped up its condemnation of the United States on Thursday for selling arms to Taiwan saying they could disrupt military exchanges, a warning that is likely to unsettle, but not derail, ties with Washington.
Arms sales are one of several irritants in the Sino-U.S. relationship which include Washington's decision to challenge Chinese duties on U.S. poultry products and U.S. pressure on China to loosen controls on its currency.
China's Foreign Ministry has already lambasted the Obama administration for telling Congress that it plans a $5.3 billion upgrade of Taiwan's F-16 A/B fighter fleet, and Beijing warned that the step would damage Sino-American military and security links.
A proposal by Texan Republican Senator John Cornyn to require President Barack Obama to sell Taiwan 66 late-model F-16 C/D fighters in addition to retrofitting the older jets was rejected by the U.S. Senate.
China considers Taiwan a breakaway province to be reunified with the mainland eventually, and by force if necessary.
"The Chinese military expresses its utmost indignation and strong condemnation of this action that gravely interferes in China's domestic affairs and damages China's sovereignty and national security interests," a Ministry of Defense spokesman, Senior Colonel Geng Yansheng, said on the ministry's website (www.mod.gov.cn).
Speaking in New York on the sidelines of the United Nations General Assembly, Chinese Foreign Minister Yang Jiechi said the United States "once again took the wrong decision in making large-scale arms sales to Taiwan."
"China is firmly opposed to this decision," he said, adding that China urged Washington to "correct the mistake of selling weapons to Taiwan, immediately revoke the above-mentioned wrong decision (and) stop arms sales to Taiwan and U.S.-Taiwan military contacts."
The U.S. offer -- which includes sales of advanced air-to-air missiles, laser- and GPS-guided bombs and radars -- would "create serious obstacles to the development of ordinary exchanges between our two militaries," said Geng.
China opposes U.S. arms sales to Taiwan on the grounds they sabotage Beijing's plans for reunification. Washington says it wants Beijing and Taipei to determine their future peacefully, and that it is obliged by law to help the island defend itself.
Chinese authorities were probably still weighing just how to punish the United States and would be closely watching domestic opinion, said Sun Zhe, a professor at Tsinghua University in Beijing who specializes in U.S. policy.
"This could be a spiraling response that can be adjusted up or down," Sun said.
"When it comes to arms sales to Taiwan, the (Chinese) public is strongly against and the central government will have to take into account public opinion or risk being criticized
as too weak."
China's official Xinhua news agency said arms sales risked damaging the detente between China and Taiwan which has developed over the last few years, especially following the election of a more pro-China president in Taiwan in 2008.
"Military confrontation is not an effective or correct way to balance cross-Strait relations," it said in a commentary.
Taiwan said the F-16 upgrade would contribute to regional peace by improving its defense capability in the face of what it called a continued threat from China.
SEEKING A STEADIER PATH
But despite Beijing's anger, tensions appear unlikely to match those of last year, when Chinese outrage over an earlier U.S. arms offer to Taiwan added to several disputes that roiled relations with Washington for many months.
This year both sides have sought to keep relations on a steadier path ahead of 2012, when U.S. President Barack Obama faces re-election and China's Communist Party undergoes a leadership handover.
After issuing his criticism of the Taiwan arms sale, Foreign Minister Yang devoted most of his speech to business leaders calling for deeper people-to-people ties and more trade and investment between the two powers.
Obama, who chose the upgrade rather than offer new planes, and Chinese President Hu Jintao will have chances to meet in coming months at regional summits and the G20 meeting in France, which is likely to discourage lingering tension.
Asked whether last year's threat to sanction U.S. companies involved in weapons sales to Taiwan still applied, Chinese Foreign Ministry spokesman Hong Lei did not give a direct answer.
"Whoever engages or participates in activities or actions that harm China's sovereignty and territorial integrity will certainly encounter the resolute opposition of the Chinese people," he told a news briefing.
U.S. Republican presidential contender Mitt Romney deplored Obama's decision to upgrade the jets rather than sell Taiwan new ones as "yet another example of his weak leadership in foreign policy."
He has also called China a cheater and vowed to slap tariffs on Chinese imports and label Beijing a currency manipulator if it didn't move quickly to float its currency.
The People's Daily, the main paper of China's ruling Communist Party, warned the United States that it has a big economic stake in ties with China.
"American politicians are totally mistaken if they believe they can, on the one hand, demand that China behave as a responsible great power and cooperate with the United States on this and that issue, while on the other hand irresponsibly and wantonly harm China's core interests," said the paper.
(Additional reporting by Ben Blanchard, Christine Lu in Taipei, Paul Eckert in New York and Doug Palmer in Washington; editing by Anthony Boadle)