Hank Paulson, the US Treasury secretary, acknowledged on Wednesday that the fall-out from the subprime crisis in the US had “no doubt” given the Chinese “pause” about the benefits of financial liberalisation.

Mr Paulson was speaking in Beijing, where he is meeting Chinese leaders, including Hu Jintao, the president, to prepare for the next round of the top-level dialogue between the two countries. This will be held in Washington in June.

Mr Paulson has pushed hard for a more liberalised financial sector in China during the talks, including allowing foreign banks and securities companies more access to the fast-growing banking and capital markets.

But China has so far proceeded cautiously, limiting the role of foreign banks and controlling even more tightly overseas brokerages, a sector in which local companies are especially weak.

“There is no doubt that what’s happening in US markets clearly has to give pause to the Chinese,” he said. “They may be too polite to say it directly.”

Mr Paulson said he emphasised the benefits of more efficient capital markets as a device that could ensure ordinary citizens received an “adequate” return on their savings.

Without them, he said, the Chinese would continue to have high levels of “precautionary savings”, and the economy’s development would be impeded.

The Treasury secretary also met Wang Qishan, the new vice-premier, who will be taking charge of the bilateral “strategic economic dialogue” on the Chinese side.

Mr Paulson said he had built up a strong relationship of trust with Mr Wang during dealings with him when he headed Goldman Sachs, the investment bank, something that would help the dialogue succeed.

He paid tribute to the recent accelerated appreciation of the renminbi, which has risen against the US dollar at an annualised rate of about 15-20 per cent so far this year.

“I am never going to be satisfied until there is a market-determined currency. But they are not ready to have one yet,” he said.

On the subject of investment – another vexed bilateral issue, where both countries have been complaining about growing protectionism against each other – Mr Paulson said he was committed to working to keep the US market open.

“This is an area where there has been a loss of confidence on both sides. More work needs to be done,” he said.

The Treasury secretary said he had briefed the Chinese leadership on the US economy and the risk that the banking crisis could result in credit drying up in the real economy. “There is a sharp slowdown. It is clearly a very difficult quarter we are in now,” he said.

Mr Paulson said he had raised with the “appropriate Chinese leaders” US concerns about Tibet, and the need for a peaceful solution through dialogue to the problems in the country.

Western governments must strengthen their oversight of financial markets and improve cross-border regulatory co-operation if they are to avoid future global financial crises, a senior Chinese banking regulator told the Financial Times on Tuesday.

“I feel the western consensus on the relation between the market and the government should be reviewed,” said Liao Min, director-general and acting head of the general office of the China Banking Regulatory Commission.

“In practice, they tend to overestimate the power of the market and overlook the regulatory role of the government and this warped conception is at the root of the subprime crisis.”

When asked what other countries could learn from China’s regulatory system, he pointed out that Chinese financial institutions needed CBRC approval to launch individual product types, making it nearly impossible for exotic financial instruments, such as the ones blamed for the subprime crisis, to exist in China.

The majority of China’s financial sector is still owned by the state, and the government retains tight control over many aspects of the industry, including senior personnel decisions at the country’s largest banks, insurers and brokerages.

Thanks to China’s lack of integration with global financial markets as well as the cautious regulatory approach of the CBRC, Chinese banks have emerged relatively unscathed from the global credit crisis, which so far has caused nearly $380bn of losses at western financial institutions.

Apart from Bank of China, which reported a subprime-related writedown of nearly $1.3bn by the end of last year, no other Chinese bank has been seriously affected.

Mr Liao said the US downturn and the steep fall in the value of the US dollar that came in the wake of the crisis has had a much greater impact, exacerbating “hot money” flows into China and contributing to asset bubbles and rising inflation.

The CBRC was established five years ago and since then the country’s previously moribund financial sector has been transformed. The largest state-owned banks have overhauled their internal structures and sold shares to strategic investors such as Bank of America, Royal Bank of Scotland and Goldman Sachs before listing on the Hong Kong and Shanghai stock markets.

The CBRC is advocating new international laws requiring governments to provide timely, accurate information in times of crisis.