China’s transition to a more innovative, consumer-driven economy is well underway. While volatility is likely to persist, smart use of state resources, together with sure-footed reforms and increased transparency in decision-making should help China achieve moderate yet sustainable long-term growth.

Expectation management is key to the stability of the yuan, and the central bank should give priority to the offshore yuan market, because this is not only a highly free and liberalized market, but also an important venue where international speculators would try to attack or manipulate the exchange rate of the yuan.

China now seeks to export its excess industrial capacity as a means to cope with its economic troubles. The problem is that China is trying to export its way out a local crisis caused in large part by a global glut of commodities. Whatever the case, we should expect Chinese foreign investment to continue to grow, spurring a commensurate rise in its political influence.

Since the global financial crisis of 2008, the growth track and pattern of the world economy have undergone dramatic changes, and maintaining an easy monetary policy by the central banks will not be enough to remedy the situation. New “supply substitution” is needed to improve the productivity and innovative output of all factors, and to earnestly promote global economic growth.

The establishment and operation of the AIIB can strengthen China’s influence in global economic governance, and China will further take part in setting the international economic and financial rules, creating a better environment for its economic development.

The US dollar’s appreciation is driven by the US economy’s recovery and the Federal Reserve’s monetary policy normalizing, not the recent turmoil in China’s stock market or its shrinking demand for oil. The US should encourage China to stick to its reform plan and introduce more of its experience on risk control and crisis management to China.

Recently Governor Zhou Xiaochuan had an interview with Caixin and talked about the yuan exchange rate regime reform, macro-prudential policy framework, digital currency and other topics. The following is an edited transcript of the interview.

Despite the slowdown, there is plenty of room for sustainable growth in the country, and the leadership’s newly announced plan promises to stabilize and expand China’s potential based on a solid foundation that’s often overlooked.

Systemic risks like a new round of global currency devaluation and capital outflow could threaten economic stability and growth. In the past two years, the spree of short-term speculative capital and the RMB arbitrage rose and accumulated a lot of risks. A new global monetary management mechanism and a more stable global exchange rate structure are urgently needed.

There are many good investment opportunities during the present economic slowdown, and that is the major difference between China and the developed countries. Even if external conditions do not improve and export growth is weak, China's economy may still grow at 6.5 percent by relying on domestic investment and consumption growth, thus contributing around 30 percent of global growth annually.