Taiwan: U.S. Urges Chinese Political Reform
"We encourage China to continue down the road of reform and openness," he said, while visiting Japan.
He cited Taiwan, considered a renegade province by Beijing, as a model of a society that has successfully moved from "repression to democracy".
Earlier, Mr. Bush praised the support given to the US by Japan's PM Junichiro Koizumi, a close ally in the region.
Analysts said China would be irritated by Mr. Bush's comments, especially his mention of rival Taiwan.
"We have to work hard and not pay attention to those people who talk about this or that, trying to shake our conviction, especially when it comes to our love of the motherland," Chinese Foreign Minister Li Zhaoxing told reporters on the sidelines of the Asia-Pacific Economic Co-operation (Apec) meeting in South Korea.
Mr. Bush later traveled to South Korea for the same summit. He is then due to visit China and Mongolia.
In his speech, made in Japan's ancient former capital of Kyoto, he said China's economic reforms should be followed by increased political and religious freedom.
"As China reforms its economy," said Mr. Bush, "its leaders are finding that once the door to freedom is opened even a crack, it cannot be closed.
"As the people of China grow in prosperity, their demands for political freedom will grow as well."
He held up Taiwan as an example of how democracy had "delivered prosperity to its people and created a free and democratic Chinese society".
But he stressed Washington had not changed its "One China" policy - recognition of mainland China's claim that there is only one China, and that Taiwan belongs to it - and indicated there should be "no unilateral attempts to change the status quo by either side".
Mr. Bush is meeting Chinese President Hu Jintao later this week.
He said he would urge China to maintain its commitment to crack down on computer piracy and to let markets play a bigger role in setting the value of the Chinese currency, the Yuan.
He praised Beijing for its role in the negotiations aimed at ending the crisis over North Korea's nuclear programmes.
On North Korea, Mr. Bush was critical of the country's human rights situation.
But he vowed that: "One day every citizen of that peninsula will live in dignity and freedom and prosperity at home and in peace with their neighbors abroad."
His Secretary of State, Condoleezza Rice, also had harsh words for North Korea, expressing disappointment over the lack of progress made in the last round of international on the North's nuclear programme.
"I think the jury is out on whether the North Koreans are prepared to do what they need to do, which is to get serious about dismantlement and verification obligations that they undertook.
"Thus far, I think the round that just ended did not have the kind of engagement on that issue from the North Koreans that we might have expected," she said.
She was also scathing of Burma, which she described as "one of the worst regimes in the world" regarding its human rights record.
She urged Burma's neighbors to wield influence over the military state.
"I understand that a lot of countries... feel the need to engage them, but I would hope that that engagement also takes the form of being serious about the really quite appalling human rights situation," she told reporters in South Korea.
Source: BBC News