Some members of the European Union, including France, have sought an end to the embargo, which was imposed after the Chinese military crushed student protests in Tiananmen Square in 1989.
A new US assessment of China's military power "clearly points up the reason that the president and the United States government have been urging the EU to not lift the arms embargo on the People's Republic of China", Rumsfeld told reporters.
At the White House, President George Bush said at a joint news conference with Australian Prime Minister John Howard that the United States has a relationship with China that is "very important and very vibrant. It's a good relationship, but it's a complex relationship".
Bush said the United States and Australia "can work together to reinforce the need for China to accept certain values as universal: the value of minority rights, the value of freedom for people to speak, the value of freedom of religion - the same values we share".
Also, the president said, Australia can press on China the need to be an active regional player, for instance by exerting its influence on North Korea to end its drive to become a nuclear power.
"To the extent the political system does not (open up), it will inhibit the growth of their economy and ultimately the growth of their military capabilities"
US Defence secretary
The new assessment of China's military, the latest in an annual series required by US Congress, will be made public late on Tuesday, Rumsfeld said. He called it a straightforward account prepared by the Pentagon in close coordination with the CIA, the State Department and the White House's National Security Council.
"As I see it, China is on a path where they are determined to increase their economy, the opportunities for their people, and to enter the world community," Rumsfeld said, adding that the Chinese have been doing "a number of things to leave the world with the impression that they are a good place for investment".
At the same time China has rapidly increased spending on defence. Its annual military budget, estimated last year by the Pentagon at between $50 billion and $70 billion, is dwarfed by the Pentagon's $400 billion-plus budget.
China needs to be more open, politically as well as economically, Rumsfeld said, in order to be seen internationally as a more welcome partner.
"To the extent the political system does not (open up), it will inhibit the growth of their economy and ultimately the growth of their military capabilities," Rumsfeld said.
Chinese missiles can "reach targets
in many areas of the world"
Rumsfeld had previewed major conclusions of the report on China's military power when he spoke at an international conference in Singapore on 4 June.
He said then that it would conclude that China's defence spending is much higher than Chinese officials have reported publicly and that China is expanding its missile forces, "allowing it to reach targets in many areas of the world".
China is one of the few major countries that Rumsfeld has not visited during his 4 1/2 years as Bush's defence chief.
The potential for military confrontation is periodically highlighted by tensions over Taiwan, the island that split from the mainland in 1949 after the communist revolution.
China claims Taiwan as part of its territory and has threatened to invade if the self-governing island declares formal independence or puts off talks on unification.