A growing number of foreign businesses in China feel shut out under new government policies promoting homegrown technology, according a survey released Monday.

Fully 38 percent of foreign firms questioned by the American Chamber of Commerce say they feel increasingly unwelcome to participate and compete in the Chinese market.

That marks a 12 percentage point rise from the last survey taken just a few months before. Over that period, the government has increasingly steered business toward state-owned companies, ostensibly as part of efforts to boost innovation among Chinese firms.

The chamber said it strongly supports promoting indigenous innovation, but believes current policies give an unfair advantage to domestic companies that enjoy strong government backing and political connections.

"Domestic innovation creates the potential for more partnerships between U.S. and Chinese firms in China and globally. However, limiting market participants and reducing competition does not encourage innovation," AmCham China President Michael Barbalas said.

The chamber's data, gathered earlier this year from 203 companies, portrays a steadily worsening environment for foreign companies in China over the past three years. Only 23 percent said they felt unwelcome in the chamber's 2008 survey.

The disquiet was most pronounced among foreign firms specializing in high-tech and information technology, with 57 percent saying they felt negatively affected by government policies. In that sector, 37 percent of foreign companies said they were losing sales as a result of Chinese government policies.

The chamber asked for confirmation from the government that state-owned companies were not being given preferential treatment in government purchasing orders _ a key stipulation of China's agreement to join the World Trade Organization.

Beijing agreed when it joined the WTO in 2001 to treat foreign and domestic companies equally. But foreign companies in a range of industries have long complained that they face barriers to imports and investment.

Such sentiment has increased following the government's launch of a 4 trillion yuan ($586 billion) stimulus package in late 2008 designed to help China rebound quickly from the global crisis.

Foreign direct investment in China rose at its slowest rate in seven months in February, totaling just $6 billion, up 1.1 percent from a year earlier.

The chamber's report comes amid a sharpening dispute over China's currency controls. Some U.S. lawmakers have demanded to have China be declared a currency manipulator by the Treasury Department, possibly mandating trade sanctions.

Chinese Commerce Minister Chen Deming warned last week that China would retaliate against any such measures, again denying that the yuan was deliberately undervalued to give Chinese exports a competitive advantage in world markets.

Business groups say China's currency controls keep the yuan undervalued by up to 40 percent, swelling its trade surplus.

The Commerce Ministry had no immediate comment on the report Monday.