Expert says China on an economic turning point

VIENNA - China is on an economic turning point, facing the challenge of lifting the economy onto a new level, said Christian Goebel, political scientist and professor of Modern China Studies in the Department of East Asian Studies at the University of Vienna.

"I am especially interested in the fiscal policy and the question of how to reshape the economy," Goebel said Monday when talking about the annual session of China's National People's Congress that ended in Beijing on March 16.

"China has a very large historical challenge with the conversion of the economy. It decides whether China remains at the current level of development, or a production in a higher level is possible," he said.

"China is now at a stage where the prior nature of growth is not working anymore," Goebel explained the reasons for the slower economic growth.

"The factors that were once cheap -- for example land or labor -- have now become more expensive in China," Goebel said. That is why China is now facing the same challenge other countries once had: to lift the economy onto the next level.

The conversion of China's economy can be seen in the enhanced services sector. "This is a natural process," Goebel said, "The growth of a country always starts with the rise of agriculture. China had this in the 1980s. Then agriculture decreases and the industry sector is growing. At the next level the industrial growth in the manufacture industry becomes difficult because wages have risen."

In his mind, the productivity of China's economy, and the increase of its productivity as well as development of human resources are important factors of the future of an economy." The next step is either a higher value industry, or the services sector," the professor explained.

Goebel sees a major opportunity for China in online trading. "The inhibition threshold of the Chinese population for new technologies is very low," Goebel said. The scientist also sees green technology as a promising opportunity for China.

The Chinese government has decided to increase the national deficit to 3 percent of the GDP, in order to finance the necessary changes in the economy.

"On the issue of national debt we have the same discussions in China now that we have as well in Europe," Goebel said, "There are two fractions of economists. Some say we need to invest with public debt, others believe that the state must save. This is Keynes versus Hayek," Goebel said.

Goebel thinks that a devaluation of the Chinese yuan in order to boost the exports is not a right medicine.

"With a decline of the yuan, China could produce more cheaply and could go back to the low-price production. However, a high inflation could be the dangerous consequence. That would be especially bad for the poor. Currently, the inflation is approximately 1 percent. I think that the government wants to stay there," Goebel said.