U.S. says China agrees market-opening steps

By Doug Palmer

WASHINGTON (Reuters) - China has agreed to steps to open its government procurement market to more U.S. companies and let U.S. banks sell mutual funds in the country, a senior U.S. Treasury official said on Tuesday.

At this week's U.S.-China Strategic and Economic Dialogue, Chinese officials said a promise made by China's President Hu Jintao to not use government procurement policies to encourage domestic innovation would apply at the local government level as well as the central government, the official said.

China also said it will revise a draft law that raised concern that U.S. and foreign companies would be shut out of Chinese government procurement markets at both the central and local level, the official said.

In a big step forward for U.S. firms seeking more access to China's financial services market, China agreed U.S. and other foreign banks will be able to sell mutual funds to customers in China and also provide custodial services, the official said.

Chinese officials also indicated they would look favorably on letting U.S. and other foreign insurance companies sell auto insurance in China for the first time, creating a significant opportunity in what is expected to be the world's largest car market, the official said.

The Chinese delegation also agreed to an inspection process to ensure government agencies are only using legal software to address concerns that U.S. software manufacturers have about high piracy rates, the official said.

The two sides also talked in depth about China's exchange rate regime. Chinese officials indicated their intention to continue moving toward a more market-oriented exchange rate, the official added.

China now sees further currency appreciation as part of its strategy to fight domestic inflation, the official added, noting that the tenor of talks between the United States and China on the issue has changed for the better.

China did not agree to a specific target for raising the value of its currency, but the United States did get assurances that they are very committed to further liberalizing their exchange rate, the official said.

The Chinese team agreed to publish all proposed trade and economic regulations in advance on a government website to address U.S. concerns about Beijing's often-opaque rulemaking process, the official said.

The United States reassured China it was open to Chinese investment, despite some high-profile cases that have created the opposite impression, the official said.

The two sides also discussed China's desire for increased access to U.S. high-technology products through both mergers and acquisitions and a relaxation of U.S. export controls.

The United States explained how its broad initiative to reform export controls would create new opportunities for importers around the world, the U.S. official said.

(Reporting by Doug Palmer; Editing by Andrew Hay)