The United States on Thursday urged China to undertake financial reform that would help to level the playing field between the two largest economies, in advance of high-level talks next week.

"Financial reform in China will help reduce one of the main advantages China's state-owned enterprises have in competing with US companies," Treasury Secretary Timothy Geithner said in a San Francisco speech.

Geithner pointed out that China's financial system is dominated by large state-owned banks, which favor lending to large state enterprises.

They also cap the interest rate savers can earn to below the rate of inflation, a system that forces people to "save excessively," limiting consumption and starving more deserving firms of capital, he said.

Geithner made the reform call in a speech ahead of high-level bilateral economic and political talks with China on May 3-4.

He and Secretary of State Hillary Clinton will hold talks with State Councilor Dai Bingguo and Vice Premier Wang Qishan in the Chinese capital, in the fourth annual US-China Strategic and Economic Dialogue.

Geithner lauded a pilot program launched last month in Wenzhou, allowing new private lenders to lend to private enterprises, as "a step in the right direction," according to the prepared text of the speech.

He called for interest rates that better reflect market forces to foster a more efficient financial sector, and which in turn could boost US exports to China.

"Raising the ceiling on deposit rates will also allow Chinese households to earn a higher return on their savings, both increasing their income and reducing their need to save, thus increasing their ability to consume goods and services, including from the United States," he told the Commonwealth Club, a public policy forum.