By Lorien Holland

BEIJING, June 4 (UPI) -- China warned Sunday growing political tensions with Washington threaten trade ties between the two nations, and it cited fears the United States may block China's entry into the new World Trade Organization.

The official China Daily cited a decision by the Clinton administration to allow Taiwan President Lee Tung-hui to enter the United States to attend a reunion of his alma mater, Cornell University and its refusal to guarantee China's most-favored nation status by making renewal automatic.

China Daily said the United States could further raise hostilities with China by blocking its long-awaited entry into the WTO on human rights grounds.

"The United States might well bill China as a human rights abuser and then resort to the non-application clause of the WTO, even after China is admitted to the free-trade club," it said.

The newspaper cautioned that China, too, had retaliatory trade measures to use and warned of a "major setback" if Washington continued to "play with fire."

The ominous predictions came as Beijing fumed over U.S. President Bill Clinton's decision to allow the president of China's archrival Taiwan to visit New York.

Domestic tensions were also running high after China's top leaders received a torrent of protest petitions marking the June 4 anniversary of the Tiananmen Square crackdown, and sent out security police to detain more than 50 signatories.

The onslaught of petitions since mid-May called for increased protection of human rights in China, and came a year after Clinton de-linked an improvement in human rights from China's most favored-nation trading status.

Although Clinton renewed China's annual most-favored status Friday and confirmed no human rights strings were attached, the newspaper dismissed the extension of trading privileges as the calm before a storm of abuse from Washington.

"The United States is likely to use MFN as a pretext to buffet China's smooth entry into the WTO," it warned.

Beijing has already spent nine years attempting to rejoin the General Agreement on Tariffs and Trade and its successor, the WTO.

It blames Washington for blocking its self-imposed deadline for joining the world trading body by the end of 1994 by arguing that China's markets were not sufficiently open to foreign competition.

Although China fears its human rights record is also linked to its WTO admission, the United States has consistently maintained there is no connection between the free-trade group and human rights.

After Clinton severed the link between China's human rights and trade last year, he pledged to pressure Beijing on its censure of free speech through means other than trade.

But his administration admitted last week that human rights violations against political dissidents, religious groups and Tibetans has escalated over the past 12 months.

Clinton's reversal of a 16-year-old policy against official visits from Taiwan is widely seen as a result of increasing hostility towards China's abuses from the U.S. Congress.

"Those U.S. congressmen with entrenched hostility towards China must relinquish their views," warned Ou Huarong, an official with China's Ministry of Foreign Trade and Economic Cooperation.

China has already retaliated against Washington for its embrace of Taiwan by suspending talks on the control of missile technology and cooperation on nuclear energy and cancelling a number of high-level visits to the United States.

Other sanctions, such as closing the U.S. consulate in Guangzhou, could be used against Washington if it permits the Taiwan president's June 8-11 visit to go ahead.

Beijing has also warned that its MFN status must become indefinite and not belinked to a yearly renewal if bilateral trade, which rose 33 percent in the first quarter of 1995 to $7.75 billion, is to continue growing.