Though facing a slowdown, China's overall economy is getting on the right track, said Klaus Schwab, founder and executive chairman of the World Economic Forum.

However, to avoid losing steam, China should replace its largely cash-driven growth engine with a more innovation- and quality-driven one, Schwab told Xinhua in a recent written interview.

"I first visited China in 1979 at the invitation of the Chinese Academy of Social Sciences and have returned here every year," he said. "What has struck me most about China since then is the incredible transformation the country has undergone."

Schwab established a solid relationship with China in 2007 when he launched Summer Davos, an annual high-level meeting of the world's political, business and social leaders. China has played host to the event alternately in the port cities of Tianjin and Dalian.

This year's Summer Davos, also known as the World Economic Forum Annual Meeting of the New Champions, will take place from Wednesday to Friday with more than 1,600 participants from all over the world under the theme of "Meeting the Innovation Imperative."

"We are entering a new era of economic growth where we are needed to build a world in which the quality of life, and not just the quantity of production, is at the center of our activities," Schwab said.

He said China, the world's largest emerging market, has sped toward a new phase where the country should invest "in the drivers of future economic growth" to incorporate greater social inclusion and environmental sustainability into economic decision-making, and build "a robust and well-functioning innovation ecosystem."

"We need to put China's recent slowdown into perspective," Schwab said. "Its overall macroeconomic situation is good -- inflation is down; the budget deficit is moderate; and its public debt-to-GDP ratio is among the lowest in the world. China's staying power in the top 30 of our Global Competitiveness Index is a tremendous achievement."

However, he noted that to continue long-term productivity and prosperity, China has to pay more attention to technological innovation and institutional reform.

"Innovation will play an increasingly important role in driving transformation, and this can only come about through growth that is inclusive of all stakeholders in society," Schwab said.

China's new leadership has established an ambitious agenda and reforms, such as market liberalization point in the right direction, he said.

The country needs to set up a level playing field for business, increase accountability and transparency in dealings, and ensure equal opportunities for every player in the marketplace for their talents and entrepreneurial endeavors, Schwab added.

He also shared his "stakeholder philosophy," saying: "After the financial crisis, we need to rethink our global system and economic decision-making processes.

"Cooperation and global trusteeship must be strategic rather than reactive, with an emphasis on prioritizing global needs and addressing imbalances.

"We must not only serve our own interests, but also the interests of all those who are interconnected with us."

Schwab hoped that the World Economic Forum he founded 40 years ago could serve as a place to create mutual trust through "international networks of informal interaction and experience exchange."

"By bringing together established leaders from the public and private sector with the Forum's young and dynamic communities, we can find new ideas and impulses for sustainable growth ... and we can learn a lot from them," he said.

The Davos fonder called on world leaders attending the meeting to leave with a vision that is "far-sighted, dynamic and goes beyond crisis management," therefore embracing the forum's mission -- Committed to Improving the State of the World.