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William Pesak that the US and China are becoming the big-2 in the world economy:

When we think about the world’s most important economies, the Group of Seven springs to mind. Anyone attending this week’s events in Singapore, where the International Monetary Fund held its annual meeting, could be excused for thinking the world has been whittled down to just two economies.

“The most important global economic relationship is the United States and China, the G-2,” says Straszheim, vice chairman of Newport Beach, California-based Roth Capital Partners.

That wasn’t supposed to be the emphasis as representatives of 184 IMF members, nongovernment-organization staffers and a small army of journalists descended on Singapore. The planned focus was on spreading prosperity to those it has eluded and on giving more clout to developing nations, not just China.

Instead, it was all China, China, China. When all eyes weren’t on the world’s most-populous nation, the collective attention of IMF-meeting attendees seemed to be on how China and the U.S. together are becoming the core of an increasingly interconnected global financial system.

Perhaps it’s not surprising that the U.S. and China were on center stage. The No. 1 and No. 4 financial powers have created an unofficial global economy; both rely on each other more than they would like to admit. China needs U.S. investment and for U.S. consumers to keep consuming; the U.S. needs China to hold down costs for everything from money to goods to services.

Ahead of his trip to China, Treasury Secretary Hank Paulson gave his first major speech in which he called for a .

Mr Paulson declared “the United States has a huge stake in a prosperous stable China – a China able and willing to play its part as a global economic leader.”

The US and China share huge areas of mutual economic interest, and highlighted energy and the environment as two specific issues where the two countries should work together.

“The biggest risk we face is not that China will overtake the US but that China will not move ahead with the reforms necessary to sustain its growth,” he said.

The speech implicitly downgrades the importance of the Chinese exchange rate as a stand-alone issue, setting it instead as part of a necessary shift towards more market-based economic management.

However, Mr Paulson warned Beijing “the level of anti-trade and anti-China sentiment in the US is also significant and growing.”

He told the Chinese authorities that they underestimated “at China’s own peril” the extent to which the currency issue was “viewed by their critics as a symbol of unfair competition.”

He called on China to press ahead with liberalisation across a broad front, including financial sector reform, fiscal and regulatory policies to reduce excess savings, currency liberalisation and enhanced protection for intellectual property rights.

We’ll see how the Chinese respond.