BEIJING, May 5 (Reuters) - China has found some U.S.-made passenger cars benefited from unfair subsidies, damaging its carmakers, although Beijing side-stepped a potential trade row with the United States by not hitting them with duties.
That decision could ease fractious U.S.-China relations, already strained by tensions over the appreciation of the yuan and criticisms from the United States that Beijing is favouring giant state-owned enterprises by keeping borrowing costs low.
China's Commerce Ministry launched the investigation in November 2009 in an attempt to defend Chinese carmakers against U.S. competitors. U.S. exports of new and used passenger cars to China tripled to $3.4 billion in 2010 over 2009's figures.
"After an investigation, the Commerce Ministry's final decision is that U.S. firms that make sedans and sports utility vehicles of 2.5 litres and bigger engaged in dumping and were given subsidies," the ministry said in a statement.
"China's domestic car industry...has suffered substantial damage. There's a causal link between the dumping and subsidies and the material damage."
But the Customs Tariff Commission of the State Council has agreed "not to impose anti-dumping duties and countervailing duties for now on the products that are being investigated", the ministry said, adding further details would be released later.
China's announcement came just days before the once-a-year Strategic and Economic Dialogue, which covers various economic and diplomatic issues between the United States and China. Trade disputes are likely to feature prominently.
China is an increasingly imnportant export market for the U.S., worth $91.9 billion in 2010, a rise of 32.1 percent on 2009 levels. Total two-way trade was worth $456.8 billion.
The duties were expected to hit cars made by companies including General Motors Co, Chrysler and the U.S. units of German firms BMW and Daimler's Mercedes-Benz, which are fighting for a slice of China's booming car market -- the world's biggest ahead of the United States.
The commerce ministry's investigation centred on whether these companies had benefited from incentives and tax breaks granted by the U.S. federal government and the state of Michigan at the expense of China's carmakers. (Reporting by Sui-Lee Wee, Additional reporting by Chris Buckley; Editing by Alexander Smith)