Volatilities are 'natural consequence' of China's economic transition

WASHINGTON - Recent volatilities of Chinese stock market and the currency depreciation are "natural" in such an economic transition as China is undergoing, chairman of the Principal Financial Group said.

Larry Zimpleman, also chief executive officer of the Principal Financial Group, said in a recent interview with Xinhua that he remains confident about China's economy as the government has long been "trying to re-engineer the economy."

In his eyes, China's economy in the past three to four decades was built on low cost manufacturing and exports which has brought hundreds of millions of Chinese people into the middle class with rising incomes.

"But clearly at some point, China isn't necessarily going to be the lowest cost place for manufacturing. Other countries are naturally going to begin to take part of that," he said.

The economic transition pushed by the Chinese government will transfer China from an export driven manufacturing economy to an economy based on internal consumption, saving and investment, said Zimpleman.

"This is a difficult transition," he said. "The natural consequence of that is there is going to be volatility. This transition can't be made smoothly. It will involve volatility and therefore we shouldn't be surprised when we see that happen."

The Chinese stock markets experienced their two worst days on Monday and Tuesday in eight years, crashing to the lowest level since December 2014. It is the first time in 10 months that the benchmark Shanghai Composite Index has been below 3,000 points.

According to the General Administration of Customs (GAC) data, China's foreign trade posted a 6-percent decrease in the first quarter, falling to 5.54 trillion yuan ($864.2 billion), with exports rising 4.9 percent and imports dropping 17.3 percent.

The growth of China's value-added industrial output, which measures the final value of industrial production has also experienced obvious up-and-down this year. The annual growth rate fell to 5.6 percent in March then gradually rebounded to 6.8 percent in June and dropped to 6 percent in July.

Though the transition is difficult, it is "the right thing to do" and "the right shift of the economy," Zimpleman said, as it will make China's development more sustainable and depend more on China's domestic market instead of the overseas one.