China's official Xinhua news agency on Tuesday criticized a group of 50 U.S. lawmakers for calling for a probe into Chinese investment in the U.S. steel sector, saying protectionism was rearing its ugly head again.

The bipartisan group of U.S. lawmakers pushed for an investigation into whether the Chinese investment in the U.S. steel sector should be blocked on national security grounds.

The U.S. Congressional Steel Caucus, in a letter to Treasury Secretary Timothy Geithner, said it was deeply concerned the recently announced joint venture between Anshan Iron and Steel Group's and the Steel Development Co also threatened American jobs.

The Chinese state-owned firm, also known as Angang, plans to invest in a $175 million rebar facility that Steel Development is building in Amory, Mississippi. Rebar is a reinforcing steel bar commonly used in concrete and masonry structures.

Xinhua said the production of rebar was hardly a secret and that the project had no access to new steel production technologies.

The tendency toward trade and investment protectionism is rearing its ugly head again, Xinhua said in the English-language article.

It is common sense within the industry that nowadays, steel trading is done through futures exchange or spots markets, so the supply of rebar for certain 'national security infrastructure projects' is irrelevant to producers, Xinhua added.

Such Chinese investments in the United States would help address the very economic imbalances between the two sides many U.S. politicians complain about, it said.

It is known to all that Chinese companies' direct investment in the United States is one solution to the imbalance, but if the American side follows the logic of the above-mentioned congressmen, it will only make things worse, Xinhua said.

By root, the logic of those congressmen reflects the over-sensitive psychology of certain U.S. politicians toward China. It also signals their tendency toward protectionism.

The move comes at a time when U.S. steel companies have complained loudly about unfair competition from China and have won a number of U.S. anti-dumping and countervailing duties on Chinese steel goods.

It also follows a high-level pledge by Geithner and senior Chinese officials in late May that the United States and China would remain open to each other's investments.

Chinese Foreign Ministry spokesman Qin Gang, who would not comment directly on the steel case, said he hoped Chinese companies investing in the United States would be treated fairly.

The Chinese government encourages Chinese firms to invest in the United States and engage in cooperation there, and to respect the law there. At the same time, we hope that ... the U.S. market is open and that Chinese companies are fairly treated, he said.

The United States blocks few foreign investments.

But last year, a Chinese mining company backed out of a deal to invest in a Nevada gold mine after the CFIUS review raised security concerns. The mine was about 100 km (60 miles) from a base the U.S. Navy uses to train its pilots.

China National Offshore Oil Corp (CNOOC) withdrew its bid to buy Unocal Oil Co in 2005 after many U.S. lawmakers objected on national security grounds.

(Reporting by Ben Blanchard)

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