WASHINGTON (Reuters) - U.S. Treasury Secretary Timothy Geithner said on Wednesday that China needs to raise the value of the yuan more quickly and faster progress could pave the way for greater access to U.S. high-tech goods.

Treasury Secretary Tim Geithner speaks about the future of the U.S.-China economic relationship at the School of Advanced International Studies in Washington, January 12, 2011. REUTERS/Kevin Lamarque

Offering a carrot-and-stick approach ahead of a state visit by Chinese President Hu Jintao, Geithner laid out his view of each sides’ priorities and said a failure by Beijing to allow for more currency appreciation could damage China’s economy.

“China still closely manages the level of its exchange rate and restricts the ability of capital to move in and out of the country,” Geithner said. “These policies have the effect of keeping the Chinese currency substantially undervalued.”

He described China as focused on taking greater advantage of U.S. investment opportunities, gaining easier terms of market access and being able to buy U.S.-made high tech goods.

“We are willing to make progress on these issues, but our ability to move on these issues will depend of course on how much progress we see from China,” Geithner said in an address delivered at Johns Hopkins’ School of Advanced International Studies.

A faster yuan rise has topped the U.S. agenda for years amid complaints from U.S. manufacturers and politicians that Beijing manipulates its currency to gain an unfair trade advantage that has cost millions of American jobs.

Since unshackling the yuan from a peg to the U.S. dollar in June, China’s currency has risen about 3 percent. But Geithner pointed out that because inflation is higher in China than in the United States, the yuan is rising even more rapidly on an inflation-adjusted basis.

For that reason, Beijing would be better off letting its currency rise in value now to cap inflation since its real value was already rising in a readjustment that Geithner posed as inevitable.

“The most important thing to understand is it is going to happen. There is no alternative path,” Geithner said. “The only choice for China is how it happens, and what mix happens through inflation and through the exchange rate itself.”

Washington wants Beijing to allow the yuan to rise more rapidly to cool its exports, narrow its large trade surplus with the United States, and shrink its foreign exchange reserves.

China counters that U.S. policy is to blame for economic imbalances, and has voiced concern that Washington’s staggering $1.3 trillion budget deficit poses a risk that could destabilize the global economy.

Beijing laid down its own marker on Wednesday ahead of the January 19 talks between Hu and U.S. President Barack Obama, voicing concern about China’s investments in U.S. debt. China tops the list of U.S. foreign creditors.

Beijing would like to see a “positive” statement from the United States about the security of its dollar-denominated assets, Chinese Vice Foreign Minister Cui Tiankai said, offering a reminder that the United States relies on borrowing from China to finance its day-to-day operations.

Geithner dismissed it as part of a “typical pattern” by Chinese foreign ministry officials trying to stake out a bargaining position ahead of official talks.

He conceded, though, that the U.S. government must “restore fiscal responsibility” and said that includes cutting spending and reforming the tax system to encourage more investment.

Geithner stressed the value to the United States of its dealings with China’s fast-growing economy, pointing out that exports to China will top $100 billion this year -- twice the rate of exports to the rest of the world.

But he complained that theft of U.S. intellectual property was rampant in China and said U.S. companies face unfair barriers that Beijing must dismantle to ensure “a more level playing field for U.S. companies that compete with Chinese companies in China, in the United States and around the world.”