"One way to assure these gains would be through a high-standard bilateral investment treaty (BIT) that supports reforms in China while giving China a fairer shot at the US market," he said, urging both countries' leaders to move forward the investment treaty talks that began in 2008.

"Negotiations have bogged down over the scope of market-opening on each side. Xi and Obama need to give their negotiators a lift," Paulson said of the upcoming summit between Chinese President Xi Jinping and US President Barack Obama in Washington.

In a letter sent to the two presidents last week, which was signed by 94 American chief executive officers (CEOs), US business leaders expressed their firm support for "the rapid conclusion of a meaningful and high-standard BIT" between the two countries and hoped "significant progress can be made on this historic agreement" during the Xi-Obama summit.

Paulson said the United States and China should also cooperate in the areas of international economic governance. "Global economic institutions simply will not adapt to 21st-century realities and function effectively without US-China coordination," he said.

He urged the United States to implement governance reforms in the International Monetary Fund and the World Bank to give China and other emerging economies a role that reflects their weight. "Unless we do, economic governance will further fragment," he warned.

In terms of the China-proposed Asian Infrastructure Investment Bank, Paulson said the United States should become an observer or even join it, in a bid to encourage existing institutions to work with it to shape its rules and practices and jointly fill Asia's multitrillion-dollar infrastructure needs.

"Having China as a key participant in an evolving rules-based global economic regime has the potential to mitigate foreign policy conflicts between the United States and China," he noted, adding that the shared economic interests "have formed the core of the US-China relationship since the end of the Cold War."