A US commission on Wednesday urged lawmakers to consider tighter rules on investment by Chinese state-owned firms, warning that they may pose economic as well as security risks.

In an annual report to Congress, the US-China Economic and Security Review Commission also called for efforts to bring China into arms reduction talks due to Beijing's growing expenditure on its opaque weapons programs.

Chinese investment abroad has soared over the past decade. The commission concluded that the world's second largest economy will likely look to acquire US companies as it diversifies its more than $3 trillion in foreign reserves.

William Reinsch, the vice chairman of the commission, said that companies in the state sector -- which accounts for up to half the Chinese economy -- may enjoy unfair advantages through lower costs for labor and financing, as well as preferences in winning contracts at home.

"While foreign investment in America is generally viewed positively because it creates jobs by adding productivity-enhancing capital to skilled US labor, there may be some exceptions to the general rule," he told reporters.

The commission, whose recommendations are not binding, called for Congress to consider adding economic considerations to a 37-year-old system in which the United States can block foreign investments for security reasons.

The commission also recommended that Congress increase the disclosure requirements for state-owned companies that seek to be listed on US stock exchanges.

The report comes one month after the House Intelligence Committee urged that Chinese telecom firms Huawei and ZTE be excluded from US government contracts and acquisitions, warning that their equipment could be used for spying.

Security fears also led President Barack Obama in September to block a private Chinese company from building a wind farm near a military site in Oregon and helped scuttle a 2005 bid by state-owned China National Offshore Oil Corp to take over former US oil giant Unocal.

China has accused the United States of protectionism and warned that efforts to prevent or regulate investment would curb the enthusiasm of companies eyeing the world's largest economy.