* EU trade chief concerned by Chinese dumping, currency
* Says prefers continued dialogue with China
* Says will not seek to declare China a currency manipulator
By Bate Felix and Julien Toyer
BRUSSELS, April 19 (Reuters) - The undervaluation of China's currency and dumping of Chinese-made goods in the European Union are contributing to strains in trade relations between Beijing and the 27-country bloc, the EU's trade chief said on Monday.
But European Trade Commissioner Karel De Gucht said the EU would hold discussions with China to try to solve the disputes rather than take retaliatory action which could increase tensions. "There are a number of (trade) topics that worry us," De Gucht, who will visit China next week to discuss trade issues, told Reuters in an interview.
"We see dumping. We are presently investigating two cases. Also there is the undervaluation of the yuan which subsidies exports," he said.
China, which reported a $7.24 billion trade deficit in March, has come under increasing pressure from the U.S. and other western government to let the yuan rise after keeping it flat against the U.S. dollar since mid-2008.
De Gucht said the bloc was not considering taking steps similar to those of the U.S. Congress, which is seeking to declare China a currency manipulator.
"This is an action that presently we are not considering. We are not interested in an escalation and if we were to propose that as the European Commission, that would certainly start an escalation and I don't think that escalation is the answer.
De Gucht said the 27-nation bloc's executive was also concerned by China's policy over raw materials, export duties and export limitations.
CHINA IS LISTENING
China is the European Union's second largest trade partner after the United States. Bilateral trade between them stood at 326 billion euros ($455.7 billion) in 2008. However, the EU continues to run a huge trade deficit with China.
In February, the EU's trade deficit with China decreased to -12.4 billion euros compared with -15.8 billion in January.
Trade tensions have grown as the EU imposed several antidumping duties on China and launched investigations on the imports of some Chinese goods following complaints from European manufacturers.
EU ministers voted in December to extend import duties on Chinese shoes for another 15 months, while Beijing launched a dispute at the World Trade Organisation over the EU tariffs, saying they were illegal.
China on Monday launched a one-year antidumping investigation into European-made potato flour, in an apparent response to the EU's announcement of an anti-subsidy investigation into Chinese-made coated paper. [ID:ID:nTOE63I02Z]
"There are problems obviously. On the other hand, we should be cautious with the interpretation of all these and what it means. Therefore it is very important to continue to have in-depth discussions with the Chinese," De Gucht said. "I think it is very important that we have a strategic dialogue whereby the kind of problems that arise on trade are resolved pre-emptively."
De Gucht said Chinese authorities were listening the criticism about its currency policy and would act in due course.
"I think they are also having internal debates on that, but it is not the Chinese habit to respond immediately and in public," he said. (Reporting by Bate Felix, Editing by Timothy Heritage)