China sought to head off concerns about curbs on Google phone technology on Wednesday, as U.S. business groups urged Washington to tackle alarming measures against foreign high-tech companies in China.

Google's threat to quit China this month over hacking and U.S. criticism of China's Internet censorship has irritated ties between the two economic giants, already hurt by disagreements over currency exchange, trade and U.S. arms sales to Taiwan.

In soothing words for investors, a Chinese official said Beijing would not seek to stand in the way of Google's Android mobile phone platform in the Chinese market.

The spokesman for China's Ministry of Industry and Information Technology, Zhu Hongren, was responding to a question about whether use of the Android application in China would be affected by the Internet giant's complaints against China.

I think there should be no limit on the use of any system as long as it complies with regulations in China, it has sound negotiations and cooperation with telecom operators and obeys relevant rules and requirement, Zhu told a news conference.

The Chinese telecommunication market is an open market.

The Ministry oversees China's mobile telephone sector.

Zhu's remarks appeared to underscore that the Chinese government does not want to scare investors by directly attacking Google and is instead directing its ire at the U.S. government, which state-run media have accused of politicizing the dispute.

Two weeks ago, Google threatened to shut its Chinese Google.cn portal and pull back from China, citing problems of censorship and a hacking attack from within the country. It is still filtering sensitive content on Google.cn.

The Obama administration backed Google's criticisms. Last Thursday U.S. Secretary of State Hillary Clinton urged China to drop Internet censorship and investigate the hacking.

Clinton is likely to press Chinese Foreign Minister Yang Jiechi about Internet freedom when the two meet in London on Thursday, a U.S. official said.

I think it is likely that they will end up discussing, maybe not the specific Google situation but the broader issue, the official, speaking on condition of anonymity, said on Wednesday.

BUSINESS GROUP CRITICISM

U.S. business groups have fired their own broadside at China, calling on top U.S. officials to pressure Beijing on moves to keep out foreign high-tech companies.

The appeal, in a letter to top U.S. officials including Clinton, comes as China formulates regulations for policies meant to encourage domestic industry to ascend the value chain.

Foreign industry fears that incentives for government purchasers to prioritize domestically developed products could lose them valuable contracts.

For several years, the Chinese government has been implementing indigenous innovation policies aimed at carving out markets for national champions and increasing the locally owned and developed intellectual property of innovative products, the business groups said, according to a text made public by the Business Software alliance.

We are increasingly alarmed by the means China is using to achieve these goals.

Signatories urged the Obama administration to make the issue a top priority and work with the business community and foreign governments to develop a strong, fully coordinated response to the Chinese government.

MOBILE PHONE INDUSTRY HURT

A showdown between Google and the Chinese government could possibly hurt mobile phone makers who had bet on the Android system to increase sales in the world's biggest mobile market.

Motorola Inc has bet its turnaround on Google's mobile software and China. Phones running on Android, an open-software platform for mobile applications, are also being developed by several Chinese firms, including ZTE Corp and Huawei.

Last week, Google postponed the launch of two mobile phones in China that use its Android platform.

After first fending off criticisms from Google and Washington, Chinese officials and state-run media have launched toughly worded warnings to the Obama administration that have the hallmarks of a concerted counter-campaign.

The People's Daily, the main mouthpiece of China's ruling Communist Party, said on Wednesday the Google dispute had added to strains that have created a rocky start for China-U.S. relations in 2010.

It said worries included U.S. arms sales to Taiwan, trade, and speculation President Barack Obama may meet exiled Tibetan leader the Dalai Lama.

If these issues are mishandled, they will have a powerful destructive effect on Sino-U.S. relations, and may even affect the broader development of relations.

(Additional reporting by Lucy Hornby and Chris Buckley in BEIJING and Andrew Quinn in LONDON; Editing by Paul Tait)

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