Lew said that China's economy is "undergoing a systemic transition where significant and fundamental shifts in policy will be required to sustain growth in the future."
Meanwhile, he touted the work done by the Obama administration to recover from a deep recession, while acknowledging that the work is ongoing.
"Major economies like ours are consistently challenged to reform and adapt, and to strengthen institutions," he said ahead of what is expected to be a busy two days of in-depth discussions over a broad range of issues from cybersecurity to currency valuation.
"We know this from our own experience recovering from the financial crisis. And you know this from your own ongoing transition to the next stage of your economic development."
Vice President Biden said during opening remarks that the "stakes are high" and that the "dynamic between the nations will have a significant impact around the world."
He suggested that China consider not just improving the flow of goods but focus on allowing for the "free exchange of ideas" across China's political and economic systems, calling the policy the "currency of 21st century success."
Lew was joined by China’s state councilor, Yang Jiechi, and Vice Premier Wang Yang, all making their debut in the fifth round of the discussions between two of the world's largest economies.
Wang said his country is ready for the dialogue and that China has "detected some problems that have hindered" their moving forward.
While he said China is open to new views, his country "will never accept views, however presented, that undermine our basic system or national interest. To us a dialogue like that is simply unacceptable. That's our bottom line and we will never give up."
But he acknowledged that the two nations' common interests are growing and the leaders must work to raise trust, and that "starts with communication so there is less misunderstanding and more agreement."
He went on to say that the relationship can "serve as anchor for world peace and stability."
Wang echoed Biden's sentiments.
"Trust, you have to trust. The stakes are very high," Biden said. "There are strong voices on both sides of the Pacific who talk about the relationship in terms of mistrust and suspicion."
"The truth is more complicated," he said, calling it a mix of competition and cooperation and saying the world needs "the best energies of both our societies."
"We'll have our disagreements. We have them now," Biden said.
But the vice president argued that there are ways to "find solutions that work for both of us."
Yang said his nation is advancing "a new model of major-country relationships" to "further increase mutual understanding."
He said while "our common interests far outweigh our differences," China's goal remains to become "a socialist modern country that is strong, prosperous, democratic, culturally advanced and harmonious," he said.
Yang said the U.S.-China relationship has "reached a new starting point," and that the country wants to "tap new thinking" and "forge ahead" on the course set by President Obama and Chinese President Xi Jingping during last month's summit in California.
"We want to inject fresh impetus into China-U.S. cooperation across the ocean."
He agreed that China is "ready to carry out and produce as many mutually beneficial results" during the two days of talks and work together to tackle globally significant issues such as cybersecurity, climate change, terrorism and maintain regional stability in areas such as North Korea.
Despite the friendly rhetoric, there are tough, divisive issues on the table for both sides.
Congressional lawmakers have a long list of what they consider objectionable policies in China, from intellectual property theft to the slowly rising value of the yuan.
Biden said that both nations benefit from a secure, reliable Internet and that cybersecurity threats, a highly sensitive issue, are "out of bounds" and "need to stop."
He added that neither nation is willing to accept North Korea as a nuclear-armed state.
"As we get our relationship right it has a consequence for the world, it does," he said.
"Competition is good for us, it's good for you, and we can both be better for it."
But, still, there is an expectation that the U.S. and China will make inroads and find areas to agree on during the two days of intense talks.
"I am confident that we will continue to make concrete progress," Lew said.
"As the world's two largest economies, too much is at stake for us to let our differences come in the way of progress."