The World Trade Organisation has opened a formal investigation into US and Mexican allegations that China is providing illegal subsidies for a range of industries, officials has said.
The two countries accuse Beijing of using WTO-prohibited tax breaks to encourage Chinese companies to boost exports, while imposing tax and tariff penalties to limit purchases of foreign products in China.
"We are concerned about a series of measures maintained by China that appear to constitute subsidies prohibited under WTO rules," US trade lawyer Juan Millan told the WTO's dispute body on Friday.
"China offers tax refunds, reductions, and exemptions that appear to be contingent on a firm's use of domestic over imported products or on a firm's export performance."
Beijing, meanwhile, blocked a separate probe of its rules for protecting intellectual property rights. But the move will probably only delay the creation of a panel until the next meeting of the WTO's dispute body in September, when Washington can bring up the issue again.
Under WTO rules, a second request for an investigative panel is automatically granted.
The administration of US President George W Bush brought the two complaints to the global commerce body earlier this year amid pressure from the Democrat-controlled US Congress to do something about America's soaring trade deficits and lost manufacturing jobs, which critics blame in part on unfair trade practices by foreign nations.
The US trade deficit set a record for the fifth consecutive year in 2006 at USD765.3 billion. The imbalance with China grew to $232.