US Treasury Secretary Timothy Geithner speaking at the Council on Foreign Relations in New York on Tuesday. [Photo / Agencies]

NEW YORK - The United States' Treasury Secretary Timothy Geithner said that China's challenge is to move away from an economy still overwhelmingly dominated by the State.

While praising China's amazing growth over the last three decades or so, Geithner said the country is still in its early stages of transition to a more modern economy.

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"They've got a long way to go," he told members of the Council on Foreign Relations in New York on Tuesday.

Geithner described China's handling of the global financial crisis as "well designed". "In the crisis, they did all the necessary things," he said.

The US treasury secretary acknowledged China's efforts in implementing a strategy of moving toward an economy that is less export-dependent. He also commended the nation's work toward gradually opening up the capital account.

Geithner and Secretary of State Hillary Clinton are scheduled to meet Chinese Vice-Premier Wang Qishan and State Councilor Dai Bingguo on May 9 and 10 in Washington for the annual US-China Strategic and Economic Dialogue, where bilateral economic and trade issues are discussed.

While the Chinese currency might be an important topic for discussion, the falling US dollar amid low interest rates, inflation concerns and the massive federal budget deficit have aroused great concern in the US and around the world.

But Geithner said the US will never embrace a strategy of weakening its currency to gain an economic advantage over its trading partners, emphasizing that a strong dollar is in the interest of the country.

Analysts worried that a weakened dollar would undermine its status as an international reserve currency, as well as the world's confidence in the US financial system.

Geithner is confident that the US Congress will increase the federal debt limit, which is expected to hit its ceiling of $14.3 trillion on May 16. The debt ceiling sets the maximum amount of outstanding federal debt that the US government can incur by law.

While the Obama administration and Republicans have different approaches to reducing the massive US deficit, Geithner said that looking through the rhetoric, there was broad agreement between the two parties on the scale of the spending cuts.

The White House asked for a $4 trillion deficit reduction to be conducted over a period of 12 years while House Republicans want a reduction of $4.4 trillion in the budget deficit over the next decade. Both have proposed very different ways of reducing the deficit.

Geithner emphasized that the cuts and reforms have to be phased in over time to avoid damage to growth.

"The biggest mistake countries make, apart from waiting too long to act in the place of a gathering storm, is that they shift too prematurely to a contractive strategy that will produce a risk to expansion," he said. "You have to lock in these reforms in difference phases to reduce the risk to the economy as a whole. You need to protect investments critical to future growth such as education, innovation and incentives for investments."

Geithner believes it is a key test for the US political system and it is important to restore the confidence that was badly dented by the crisis.

"This is the moment that we have to demonstrate that our political system will work, we can solve problems and we can put things together even if we are divided on many things. It's certainly in our capability to do that," he said.

He played down the story that the US government might lose its sterling credit rating from Standard & Poor's, and said he believes a solution will be found and that the problem is manageable.