A Washington conference on China and the faltering world economy Tuesday heard calls for much closer cooperation between the United States and China.

Fred Bergsten, the head of Washington's Peterson Institute, says incoming president Barack Obama should initiate annual bi-lateral meetings with his Chinese counterpart, Hu Jintao.

Speaking at a Brookings Institution conference, Bergsten said only the United States and China can exert global economic leadership, particularly in critical new areas like combating climate change. He said that in the ongoing financial crisis it is critical that both countries avoid trade protectionism and competitive currency devaluations. Bergsten applauded moves to expand the Group of Eight economic grouping into a more inclusive Group of 20, which includes China and India.

"As we go forward in this whole process, we need to increasingly see at the center of the world's economic steering process an informal G2 between the United States and China. I stress informal. I don't want to announce it publicly or have big photo ops," he said.

John Thornton of the Brookings Institution emphasized China's growing economic clout. He said the United States should lift the remaining barriers restricting Chinese ownership of U.S. companies.

Shen Minggao, chief economist at Caijing Magazine in Beijing, said China's private sector is increasing its influence over publicly-owned enterprises. "Only 40 percent of investment (in industry) is now done by state-owned enterprises (SOE). Sixty percent is now done by non SOEs. Now, if we go back to 1997, more than two-thirds of investment was done by state-owned enterprises," he said.

Shen does not foresee an early decline in China's huge trade surplus with the rest of the world. He agreed with Bergsten that China needs to boost domestic consumption and de-emphasize its reliance on exports. "What the government needs to do is stop that trend and allow faster income growth among households. And what that means is tax cuts," he said.

China, which engaged the world economy only 30 years ago, has already become the world's third biggest economy and is likely to soon overtake Japan for the number two position behind the United States. Bergsten said China, the United States and the 27-nation European Union are the world's only economic super-powers. But he said the E.U. is constrained because politically it does not speak with a single voice.