U.S. Treasury Secretary Henry Paulson said Thursday that China's economic development is "very, very important" to China and the rest of the world.

U.S. Treasury Secretary Henry Paulson, seen 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]

"I really believe that a China that is a growing part of the global economy is going to benefit the U.S. and benefit the rest of the world," Paulson said in an interview with Fox News.

Paulson said that China's economic relationship is very important with the United States and with the rest of the world.

"And the more constructive engagement we all have together, the higher the cost of any kind of conflict or anything that would undermine the global economic stability," he added.

Paulson noted that the United States has some very important economic relationships, "but I really believe the most important long-term economic relationship we're going to have is going to be our relationship with China and vice versa."

Mentioning that some people are concerned that China is somehow or other going to outcompete the United States and overtake the U.S. economy, Paulson said that "the thing I am most concerned about is that China won't move ahead quickly enough with their reforms and that if they don't move ahead quickly enough with their reforms, then they may have their own economic issues."

China has got some formidable economic challenges, he said, "I would like to believe they're going to continue with their reform program and that they're going to accelerate the pace of those reforms."

"China needs to keep growing its economy, needs to keep reforming its economy, needs stable economic relations around the world, and I think that's very important of China," Paulson said.

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