China extended an olive branch to America as it announced a crackdown on pirated goods before a meeting with the Treasury Secretary.

The anti-piracy campaign will target producers and distributors of illegally copied films, music and other goods, the official Xinhua news agency said. It comes after a 100-day crackdown targeting vendors, which began in July. Xinhua said that smugglers would be “severely punished”.

China is believed to be the world’s biggest source of pirated goods, ranging from Hollywood movies to designer clothes, sports equipment and even medicines. American officials say that Chinese piracy costs legitimate producers up to $50 billion (£25.6 billion) a year in lost potential sales.

Washington has called for more action against piracy and told Beijing that it may face a formal complaint at the World Trade Organisation, with the possibility of sanctions, if it fails to stamp out the illicit trade.

The announcement came as the US trade deficit with China hit a record high for a third straight month in November, adding to a politically charged atmosphere for the talks.

Business groups have appealed to Hank Paulson, the US Treasury Secretary, to take a hard line with Beijing over its currency controls. They say China’s yuan is undervalued, giving the country’s exporters an unfair price advantage.

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