Hank Paulson, the US Treasury Secretary, on Wednesday called for a far-reaching reassessment of US-China policy, urging both nations to rise above short term disputes to take a "generational" view of their relationship.

US government opposes efforts to punish China

In another development: China, US vow closer energy ties

Treasury Secretary Henry Paulson makes his first speech on the international economy since joining the Bush Cabinet in July at the Treasury Department in Washington, Wednesday, Sept. 13, 2006. [AP]

In a landmark speech ahead of his first trip to China as Treasury Secretary, the former Goldman Sachs chairman and China expert said he would tell his counterparts in Beijing "we want you to succeed."

Mr Paulson declared "the United States has a huge stake in a prosperous stable China - a China able and willing to play its part as a global economic leader."

The US and China share huge areas of mutual economic interest, and highlighted energy and the environment as two specific issues where the two countries should work together.

"The biggest risk we face is not that China will overtake the US but that China will not move ahead with the reforms necessary to sustain its growth," he said.

The speech implicitly downgrades the importance of the Chinese exchange rate as a stand-alone issue, setting it instead as part of a necessary shift towards more market-based economic management.

However, Mr Paulson warned Beijing "the level of anti-trade and anti-China sentiment in the US is also significant and growing."

He told the Chinese authorities that they underestimated "at China's own peril" the extent to which the currency issue was "viewed by their critics as a symbol of unfair competition."

He called on China to press ahead with liberalisation across a broad front, including financial sector reform, fiscal and regulatory policies to reduce excess savings, currency liberalisation and enhanced protection for intellectual property rights.

Mr Paulson praised China's "remarkable" record of economic reform, and said China already "deserves to be recognised as a leader."

This, he said, is why the US backs plans to give China and other emerging markets a much bigger say in the International Monetary Fund. He reiterated former deputy secretary of state Bob Zoellick's phrase that the US wants China to be a "responsible stakeholder."

However, Mr Paulson said "with leadership comes responsibility."

He urged China to abide by the "spirit and letter" of the rules of the IMF and said the US looked to China to be its "co-operative partner" in reviving the Doha round trade talks.

And he suggested these responsibilities "go beyond the economic arena" including human rights and non-proliferation.

The speech, which appeared to be aimed equally at Beijing and at anti-China opinion in the US Congress, positions Mr Paulson in the role of honest broker between the two.

Mr Paulson made an impassioned defence of open markets, declaring "globalisation and interdependence are here to stay. No nation can turn back the clock."

He characterised the fundamental division as not one between the US and China, but between liberalisers in both the US and China, and their protectionist opponents.

But he warned "I believe that if China does not move quickly to continue reforming its economy it will face a backlash from other international economic stakeholders. This backlash would not benefit any of us."

At the same time, Mr Paulson urged the US to do more to ensure that the benefits of free trade were more widely shared - echoing a recent call by Federal Reserve chairman Ben Bernanke.

"It is the responsibility of all nations to search for ways to moderate income disparities and help those who lose their jobs to international competition," Mr Paulson said.