Speaking at an intellectual property forum in the southern Chinese city of Guangzhou, he also said the manufacturing powerhouse should focus on creating more "homegrown entrepreneurs."

China had made efforts to tackle what has become a thorny issue between the two trading partners, and officials signed agreements over the past year to beef up enforcement, the US commerce chief said.

"But despite these steps, American companies in fields as diverse as technology, entertainment and pharmaceuticals still lose billions every year in China from intellectual property theft," Locke said in prepared remarks supplied to AFP.

"In short, much more needs to be done."

Raising criminal penalties "would add an important level of deterrence," Locke said.

"So long as the cost of breaking the law is low, illegal behavior will thrive," he added.

He said US officials continue to receive reports of lax enforcement in Guangzhou and "occasional aggressive" efforts to clamp down on trademark infringement in Shenzhen, a city of 14 million near Hong Kong.

Guangzhou and Shenzhen are major manufacturing hubs in China's southern Guangdong province, which is home to more than 100,000 factories.

Firms in the province led China last year in obtaining patents on their own products, Locke said.

"Guangdong Province has the potential to be China's epicentre of innovation," he said.

But he but added that will require "a system of laws and a regulatory infrastructure that rewards and protects those who take risks to develop new innovations."

The need for stricter copyright rules will continue to grow as China and other countries focus on creating clean energy products, he said.

"The necessity of having robust patent and trademark protections is not a matter of serious debate," he said. "And I hope this sentiment will start to take deeper root in China."

Locke, US Trade Representative Ron Kirk and Agriculture Secretary Tom Vilsack are scheduled to hold high-level trade talks with Vice Premier Wang Qishan in eastern Hangzhou on Thursday.

President Barack Obama will pay his first presidential visit to China next month.

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