"We speak out for a free press, freedom of assembly, and labour rights not to antagonise China's leaders, but because trusting its people with greater freedom is the only way for China to develop its full potential.
"And we press for openness and justice not to impose our beliefs, but to allow the Chinese people to express theirs," he said.
China hit back at Bush's criticism, saying it opposed any interference in its internal affairs.
Qin Gang, China's foreign ministry spokesman, said in a statement on the ministry's website: "We firmly oppose any words and deeds that use human rights and religion to interfere in other countries' internal affairs.
"The Chinese people enjoy religious freedom according to law. That's a basic fact evident to all.
"With regards to differences between China and the United States on rights and religious issues, we have always advocated that the two sides should carry out dialogue and exchanges on the basis of equality and mutual respect."
Bush praised China's market reforms but said that he hoped it would also embrace freedom.
However, Victor Gao, director of China's National Association of International Studies and a former interpreter for the late Chinese leader Deng Xiaoping, told Al Jazeera that the Chinese people had been the benificiaries of a tremendous amount of economic development and political reform.
"One question I want to ask president Bush is 'if people don't have enough liberty and freedom how can they have transformed the whole economy?'" he said.
"We, the Chinese people, want to be good friends with the American people. China wants to be a great friend of the United States, because only great friendship between these two countries will contribute to world peace."
The US leader arrived in Thailand from South Korea on Thursday as part of a three-nation Asian tour in what is expected to be his last visit to the region as president.
Bush's comments, expected to anger the Chinese leadership, appear aimed at deflecting criticism from rights groups and religious activists over his attending the ceremony in Beijing.
Bush has repeatedly said he was going to Beijing for sports and not for politics.
Sophie Richardson, the Asia advocacy director for Human Rights Watch, said "the leadership in Beijing will almost certainly find his comments irritating or objectionable'.'
"But they will clearly understand that the United States will not impose any real consequences if they do not make progress on human rights."
Bush was not the only world leader speaking out on China's rights record on Thursday.
Kevin Rudd, Australia's prime minister, said the international community should maintain pressure on Beijing over human rights.
"I believe the responsibility of the international community is still to speak with a strong and united voice on these questions while recognising that over time some progress has been made in China," Rudd told Australian television, also hours before heading to Beijing to attend the Olympics opening ceremony.
Adding to the pressure on China, human rights groups said that 127 athletes competing in the Beijing games had urged the government to peacefully address the Tibet issue and protect freedom of religion and expression.
|Small groups have held protests over Tibet and human rights issues [AFP]
The athletes signed a petition to Hu Jintao, the Chinese president, asking him "to enable a peaceful solution for the issue of Tibet and other conflicts in your country with respect to fundamental principles of human rights", Sports for Peace, Amnesty International and the International Campaign for Tibet said late on Wednesday.
They also pressed Hu for "freedom of expression, freedom of religion and freedom of opinion in your country, including Tibet".
Beijing has often rejected the mixing of sports and human rights issues as "politicising" the Olympics.
Small groups of protesters have already been making their presence felt in Beijing, with several being stopped or led away by security officials on Wednesday, and the petition raises the possibility of athletes making gestures supporting Tibetan self-determination during the games.
So far, the authorities appear to be showing uncharacteristic restraint as the opening ceremony looms and the eyes of the world are trained on Beijing.