Klaus Schwab has long been optimistic that China is on the right path. But as the country enters what many are calling a new normal of medium growth, the 76-year-old founder of the World Economic Forum thinks Premier Li Keqiang needs to let the world know that China will continue to drive the global economy.

When the annual event takes place from Jan 20 to Jan 24 in Davos, Switzerland, Li will join dozens of government leaders and 2,500 participants from more than 140 countries to discuss the world's key economic challenges.

"With sluggish global economic development, we can't assume that China will remain unaffected."

It will be crucial to find ways to "unlock China's growth potential in a balanced and sustainable way", he said.

For China and the world, it is paramount that the country's economy remain stable and continue to grow.

"I applaud the efforts the Chinese leadership is undertaking in this regard. The transition from mass production to innovation-driven growth is underway, but challenges remain."

"We are confronted by profound political, economic, social and, above all, technological transformations. They are altering long-standing assumptions about our prospects, resulting in entirely new parameters for decision-making."

Because this is a global phenomenon, China will not be spared from those challenges, economic or otherwise.

Schwab expects China's leadership will have to further strengthen social inclusion and work on mitigating the risks of fast economic growth and urbanization.

Switzerland and China have signed a free trade agreement and Schwab said he welcomes this step toward economic integration and the promotion of free trade.

While limited in size, Switzerland can be a good partner to help Chinese businesses make the transition from exporting mass goods to creating more value through high-end goods by emphasizing innovation, research and development, he said.

"Switzerland, in turn, will benefit from better access to China's fast-growing middle class."

Schwab also said China and the EU should act faster to forge free trade ties.

"The question could not be timelier," he said.

Schwab said the Davos meeting will be a perfect venue for exploring opportunities for strengthening Sino-European trade and a round-table will be organized for trade ministers to discuss existing hurdles to free trade.

"In addition, we have invited the World Trade Organization to present its latest findings to our participants."

Looking at how complex and interdependent today's world is, as well as at all the changes the world faces, it is difficult to single out specific challenges, he said.

However, for Schwab it is clear that the rising disparity in incomes and social inequality, and growing geopolitical tensions, as well as diminishing cooperation and climate change are among the most pressing issues the world faces.

"Perhaps the greatest and most persistent challenge is growing inequality. This trend is not sustainable, and if left unaddressed it threatens the very future of capitalism."

Government must lead by promoting a fair and equitable system, one that benefits all groups in society, he said. Business has a critical role to play, too, by investing in innovation and in the talent needed to create high-quality jobs and raise living standards.

China's leadership has set itself an ambitious agenda, he said. The country, with its economic importance and political clout, must play a role in preventing conflict, protecting the climate and creating stronger global growth. This can only be achieved through collaboration, he said.

"But despite all the challenges, it is possible. I've learned that those who are pessimistic about China's development and course are usually proven wrong."