By Mure Dickie

BEIJING, Thursday July 24, 1997 (Reuter) - China and the United States have lost sight of the vision that led to diplomatic ties in 1978, but shared interests mean Sino-U.S. relations are as vital as ever, former President Jimmy Carter said Thursday.

Nearly 20 years after Carter established formal ties with communist China, the sense of purpose in Sino-U.S. relations seemed to have dissipated, he said in a speech to the Chinese People's Institute for Foreign Affairs.

"In recent years, for reasons that are known to us all, both Americans and Chinese have lost sight of the original vision that brought us together," he said.

Sino-U.S. ties have been sorely tested in recent years by disputes over trade, Taiwan and human rights, but Carter said both sides had a common interest in curbing the proliferation of weapons of mass destruction and boosting stability.

Beijing and Washington presided over complementary economies and shared a desire to promote stability on the divided Korean peninsula, he said.

"Some ill-advised Americans condemn the policy of welcoming China's growing participation in world affairs... They fear China's economic development and the likely gradual growth in military power that will come with it," he added.

The United States would be far better served by anticipating the challenges posed by a prosperous and friendly China than by trying to keep the world's greatest developing nation weak and isolated, he said.

He welcomed the scheduled visit of Chinese President Jiang Zemin to the United States this year, a trip intended to cap the warming trend in cross-Pacific ties that were chilled by disputes over trade and Taiwan in 1995 and 1996.

On human rights, a perennial irritant in Sino-U.S. relations and a subject close to the former president's heart, Carter hinted that Beijing should offer less prickly responses to U.S. criticism of its record.

China dismisses almost all expressions of foreign concern about its policies in restive minority regions or its suppression of dissent as interference in internal affairs.

Beijing's treatment of people in its Himalayan region of Tibet was eliciting increasing international concern, Carter said in a speech also laced with references to shortcomings in America such as racism and Washington's unpaid U.N. dues.

"In different ways, both of our countries fall short of our aspirations and commitments, and it is beneficial for each of us to evaluate ourselves and one another," said Carter, who first visited China in 1949 as an officer aboard a U.S. submarine.

"Each of us should welcome reminders of our deficiencies as long as the comments are constructive rather than arrogant or self-righteous," he said.

"Both China and the United States have neglected these simple points in our human rights discussions in recent years."