China, U.S. must avoid protectionism: Gutierrez

BEIJING (Reuters) - The United States and China both need to fend off a troubling rise in economic nationalism in order to keep their economies strong, U.S. Commerce Secretary Carlos Gutierrez said on Thursday.

Speaking to business groups in Beijing, Gutierrez said the large U.S. trade deficit with China was feeding into protectionist sentiment but added that steps such as trade legislation aimed at China could only be counterproductive.

"It's no secret that the $256 billion bilateral trade deficit is a concern. It plays right into the hands of those who criticize not just free trade with China, but frankly, free trade in general," Gutierrez said, noting some of the rhetoric surrounding the U.S. presidential election.

"Economic isolationism has proven to be a flawed strategy and we have seen time and time again that protectionism doesn't protect anybody."

Gutierrez acknowledged that attention on Capitol Hill had recently shifted somewhat from China to issues such as Washington's free-trade agreement with Colombia, but cautioned that it could be thrust back into the spotlight as the presidential campaign continues.

He pointed to the need for better protection of intellectual property rights and greater government transparency -- perennial complaints about China by U.S. firms.

The United States for its part needs to reassure China that it welcomes investment, given the protectionist signals that have been sent to Beijing through experiences such as Chinese oil firm CNOOC's failed bid to buy Unocal in 2005, Gutierrez said.

CNOOC withdrew its bid after facing intense opposition from U.S. politicians who said the acquisition could harm American economic security.

He noted that while U.S. companies had invested more than $22 billion in China, Chinese firms had put just $550 million into the United States, despite many now being flush with cash.

Gutierrez was in Beijing to meet a number of Chinese officials, including his new counterpart, Chen Deming.

He also officially launched the implementation of an agreement signed late last year that will allow for Chinese tour groups to travel to the United States, something he said would help trim the trade deficit while enhancing understanding.

The first group of tourists under the program is scheduled to visit the United States in mid-June, coinciding with the fourth round of the bilateral "strategic economic dialogue", to be held in Washington.

(Reporting by Jason Subler; Editing by Ken Wills)