"We're going to treat China the way we're going to treat other people, and to the extent that we're anxious about transactions, we will block them, Mnuchin said on CNBC on Wednesday".
Aides had urged Trump to directly impose limits on Chinese investment in USA technology companies, but Trump said he would back congressional efforts to give new powers to the existing Committee on Foreign Investment in the United States (CFIUS).
President Trump on Wednesday softened proposed limits on China's right to invest in USA technology companies, the latest sign of an on-again, off-again trade war that is raising doubts about his ability to wring concessions from Beijing.
The administration will still impose $34 billion in tariffs on Chinese goods effective July 6, and China has pledged to retaliate.
On Tuesday, the House easily approved a bill that would beef up reviews of foreign investments now handled by the Committee on Foreign Investment in the United States, or CFIUS.
The measure gives the Committee on Foreign Investment in the United States more power to review sensitive investments involving China, Russia and state sponsors or terrorism, allows reviews of land purchases near US military installations and ports and could stop key technology from being exported to China and other countries.
Xiao told the Belt and Road Summit, a conference organised by the Hong Kong government and Hong Kong Trade Development Council, that "protectionism, unilateralism and a zero-sum game mentality" would only lead to "dead ends", but did not explicitly refer to either Trump or the United States.
After days of declines and increased volatility amid fears of a worsening trade war, USA stocks rallied, with the benchmark Dow Jones Industrial Average up 0.9 per cent shortly after 1400 GMT, echoing the more optimistic sentiment in European markets.
Mnuchin, who chairs the CFIUS review committee, said Wednesday that if Congress doesn't approve a reform bill, the White House will take another look at it powers to protect sensitive US technology.
James Lewis, who studies technology policy at the Center for Strategic and International Studies, said he foresees no quick resolution to the dispute.
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Both the House and Senate have passed versions of a bill to increase the panel's authority to review a variety of investments not covered under current law, including minority stakes.
Now the Trump administration is trying to force China to change its ways. The Chinese don't want to play by the rules.
"I have concluded that such (CFIUS) legislation will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security, and future economic prosperity", Trump said in a statement that did not specifically name China.
It can make recommendations to the president, who can stop a deal from going though, although in practice a negative CFIUS finding alone is sometimes enough to kill off a deal.
The Treasury-led panel reviews proposed acquisitions of USA assets by foreign investors, which the president can veto.
"If in fact President Trump is now backtracking on tough limits on Chinese investment, it is a VERY BIG MISTAKE", Rubio tweeted early Wednesday.
United States stocks traded higher on Wednesday morning after Trump announced the new approach to USA investment restrictions.
The president's choice to back away from strict restrictions on Chinese investment marks a slight easing of tensions as United States tariffs on China are set to go into effect.
Mnuchin told reporters that the differences among Trump's advisers had been overblown.