Washington - Treasury Secretary Henry Paulson said that China is unlikely to overtake the United States as the world's largest economy, and in fact faces important "downside" risks.

Treasury Secretary Henry Paulson, seen here in September 2006, said that China is unlikely to overtake the United States as the world's largest economy, and in fact faces important "downside" risks. [AFP]

China must accelerate reforms to rebalance its growth both for its own good and for that of the world economy, Paulson said in an interview with Fox News.

Asked if China, given its double-digit rates of growth, could surpass the United States as the world's pre-eminent economy, Paulson said past performance was no guarantee of the future.

Those who make that claim "look at the past and want to extrapolate future growth from the past and just assume that the economy will keep going up at the rate it has been growing and defy economic gravity," he said.

"They are assuming that somehow or other China will be immune from all of the economic issues and problems that confront the rest of the world.

"As the economy gets bigger and bigger and as they are part way from an economy which is centrally planned to one that is market driven, it is increasingly important that they move ahead quickly with their reforms.

"I think that there's more risk on the downside for China, although I am an optimist," Paulson said.

During a visit to China last month, the Treasury secretary inaugurated a high-level economic dialogue with Chinese leaders designed to thrash out the longer-termer challenges posed by the country's dramatic growth.

But more immediately, Paulson is under pressure from some in US Congress to get tough on China for trade imbalance.

His comments came on the day that new data showed the US trade deficit surged to US$69.9 billion in August, with Chinese imports accounting for the lion's share of the shortfall.