WASHINGTON - US and Chinese officials agreed on Wednesday to launch negotiations on a bilateral investment treaty and to expand cooperation on energy and environmental issues, but differences remained as to how quickly Beijing should liberalise its markets.

At the conclusion of two days of high-level economic talks, US Treasury Secretary Henry Paulson said an investment pact 'would send a strong signal that our two nations welcome investment and will treat each other's investors in a fair and transparent manner.'

He said the ten-year energy framework agreement would engage businesses, academics and leading research facilities to share knowledge as well as commercialise new alternative energy and environmental technologies.

Chinese Vice Premier Wang Qishan, standing beside Paulson at a press conference after the latest round of bilateral talks dubbed a 'strategic economic dialogue,' said the two countries will coordinate monetary and fiscal policies, adding both were committed to the principles of free trade.

However, Mr Wang did not elaborate as to what such policy coordination would mean in practice.

Praise yuan's rise
Mr Paulson told questioners the United States welcomed the increased pace of appreciation in China's yuan currency - much sought by US manufacturers - and wanted more of it. He made light of questions whether China had complained about the weakening dollar's impact on oil and other commodity prices.

'I don't see why Chinese officials can't say something about the US dollar weakness. Everyone else seems to say it around the world,' Mr Paulson said, adding that he still considered US economic fundamentals to be strong.

But Chinese officials took a more measured tone on the dollar, telling reporters a falling greenback was not in US or anyone else's interest and calling for the United States to be 'responsible' in its attitude.

The proposal for a bilateral investment treaty has emerged as the centerpiece of the talks, and Mr Paulson said there will be several meetings of negotiators on it before the next round of SED talks take place in China in December.

'The US will pursue a comprehensive treaty ... which reflects high standards of investor protection and provides legal protections for all economic sectors,' Mr Paulson said.

US business groups see such an investment treaty as a way to pry open closely guarded Chinese markets for everything from financial services to industrial goods.

A five-page 'fact sheet' listed numerous specific advances from the SED talks besides the proposed investment treaty, including China's agreement to allow more foreign companies to issue shares and depository receipts in China as well as the right for foreign-incorporated banks to issue yuan-denominated bonds.

Throughout the talks, Chinese officials have said they wanted to learn the lessons from the United States' subprime mortgage meltdown, which they blamed on inadequate regulation, implying they will move at a measured pace in opening markets.

Regulation an issue
The governor of the People's Bank of China, Zhou Xiaochuan, highlighted the part that lax regulation of subprime markets played in triggering US financial market woes, saying Beijing needed time to study how to avoid a similar bind.

Inadequate regulation had caused some of America's problems, Mr Zhou said, adding: 'Now, apart from wanting to learn the US's experience in macroeconomic policy, we also want to learn some of the lessons they have learned as a result of the turbulence.'

That led a US official to warn China faces 'significant costs ... if they were to slow down with respect to their financial sector liberalisation,' a sign of the importance that US firms pushing everything from credit cards to insurance attach to getting freer access to Chinese consumers.

US complaints about China's foreign exchange policies took a back seat at this round of the SED talks, as Mr Paulson applauded recent rises in the yuan's value.

'I told the Chinese I welcome recent increased pace of appreciation of the RMB and urge China to continue its move toward greater exchange rate flexibility, a crucial tool in controlling inflation and managing the domestic economy,' Mr Paulson said.

The Chinese delegation also went to the White House to meet President Bush at midday Wednesday, underlining the importance the administration puts on trade with China after the United States racked up a record US$256.2 billion (S$350.7 billion) deficit with China last year. -- REUTERS