Outlook for China's economic transformation is hopeful

The outlook for China's economic transformation is "hopeful," and its new leadership has been " aware of the need" to make the transition, said Gorge Soros, the retired chairman of Soros Fund Management and founder of Quantum Fund in a recent interview with Xinhua.

"I think the initial signs (of the new leadership's financial policies) are very encouraging," he said, adding he is "optimistic " and China has been "at the forefront of economic planning."

China's 12th Five-Year Plan (2011- 2015) made a turning point in the country's growth model, steering the economy away from export and investment-led growth to boost domestic consumption.

"It is going to be a very difficult transformation," Soros said, adding the growth of household consumption taking one third of China's economy cannot make up for the slower growth in exports and investments, which account for two thirds of the economy.

"Therefore, the overall growth rate will have to be significantly slower than it has been up to now. That is a very important point."

He said the more than 10 percent rapid economic growth is unlikely to recur in the "more mature phase" that China is entering today.

Soros said the existing model has produced "positive results," and Chinese government has "quite substantially" accumulated reserves, such as the foreign reserve, that give them the need to correct shortcomings.

"On the whole, I think the outlook (for China's economic transformation) is hopeful," he said.

CHINA SAILS THROUGH FINANCIAL CRISIS

On China's financial regulation, Soros said the Chinese financial regulators have "a much closer and more intimate" knowledge of what goes on inside the banks, while in the West, the lack of detailed knowledge was the reason why "things went so wrong."

"I hold China's financial regulatory system in very high regard. I think they understand the problems, and they have learned lessons from the mistakes that were made in the West."

He said China was "very successful" in 2008 despite the more than 25 percent drop in export, and China had the resources to help itself sail through the financial crisis. Moreover, it has become the motor of the global economy since then, he said.

SUCCESSFUL TRANSITION HELPS BOOST STOCK MARKET

Soros said if China's authorities are successful in changing the growth model in five to 10 years with more production for consumption, it would also help lift China's stock market, which has underperformed the global stock market in the last few years.

Soros said that Chinese stock market did not go up in line with the country's overall economic growth is "not surprising" as that growth was accompanied by lack of profits, whereas stock markets generally reflect the growth of earnings instead of output.

He said if the profits of the companies that cater to the consumers could increase, those winners who can innovate and fulfill the needs and the taste of the consumers could become " very good investments."

"Of course, that would mean a larger portion of the economy would be in the hands of private enterprises rather than state- owned enterprises, and the private enterprises would be more independent from the state. That would be a big improvement in economic performance."