"Recent events, specifically the well-publicized Google incident, have reminded us of the continued challenges faced by foreign and US companies operating in China," US Commerce Secretary Gary Locke told a meeting of the US China Business Council in Washington.

He called on China to continue making strides to be "more transparent, predictable and committed to the rule of law" to reassure American firms.

"If there is backsliding on these issues, it will affect the appetite of US companies to enter the Chinese market and ultimately that will be bad for both the people of China and the United States," Locke said.

Google has threatened to abandon its Chinese search engine, and perhaps end all operations in the country over the recent cyberattacks. It has also said it is no longer willing to bow to Chinese government censors.

But China has said the hacking charges were without foundation.

The White House said last week President Barack Obama was "troubled" by Google's statements it had been attacked by China-based hackers, and demanded official answers.

The Google row, which erupted two weeks ago, has threatened to damage Sino-US ties, which are already dogged by trade and currency issues, US arms sales to Taiwan and climate change.

Some US groups are calling on Washington to challenge at the World Trade Organization China's so-called "Great Firewall" of Web censorship.

Microsoft chief executive Steve Ballmer said meanwhile that the US software giant intends to remain in China and while it is "committed to protecting and advancing free expression throughout the world" it is subject to local laws.

"In many countries throughout the world, Internet and technology companies must comply with laws that impact privacy and freedom of expression, particularly peaceful political expression," Ballmer said in a blog post.

"We have done business in China for more than 20 years and we intend to stay engaged, which means our business must respect the laws of China," he said.

"At the same time, Microsoft is opposed to restrictions on peaceful political expression, and we have conversations with governments to make our views known," Ballmer said.

"In every country in which we operate, including China, Microsoft requires proper legal authority before we remove any Internet content; and if we remove content, we give users notice," he added.

Locke, the first Chinese American commerce secretary, also criticized China's so-called indigenous innovation accreditation system, which he said provided domestic firms that use Chinese intellectual property a leg up in bidding on government procurement projects.

"While this practice may have the laudable goal of nurturing a stronger innovation ecosystem in China, it significantly disadvantages US companies, indeed all foreign companies, interested in bidding for contracts worth an estimated 85 billion dollars annually," he said.

The US commerce chief said the program also appeared "to be at odds" with assurances the Chinese leaders provided to the United States during key bilateral economic and trade talks last year.

"This indigenous innovation issue is one that the Obama administration takes very seriously, " he said, adding that the US authorities would "press this issue" with Beijing.

Locke plans to lead a trade mission, the first cabinet-level trade mission of the Obama administration, to China and Indonesia in May, focusing on promoting US technologies related to clean energy and energy efficiency.

On the perennial issue of copyright piracy with China, he said he would also push his counterparts to take "more aggressive steps" to protect and enforce intellectual property rights.

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