No hard landing, rise in unemployment in 2015

One of China’s top economists says the country will avoid a hard landing in 2015 because it does not face a high risk of unemployment or any worsening debt crisis, although both risks do exist as the economy slows. Cao Yuanzheng, chief economist at Bank of China Ltd, said five years ago one percentage point of GDP growth created 1.2 million new employment opportunities, but today the same gain would create 1.8 to 1.9 million jobs.

Speaking on Saturday on the sidelines of the annual Sanya Forum in Hainan province, Cao said: “China hoped create 10 million jobs in urban areas this year and had achieved that number by September. If employment targets remain the same next year, aGDPgrowth of more than 6 percent will be enough.”

Economists now expect the Chinese economy to grow by 7 percent next year.

Although bad loans will continue to rise, Cao said commercial banks had set aside more than 2.5 percent of their total lending book to cover potential bad loans.

“The banks’ non-performing loan ratio was 1.08 percent at the end of June and we believe the probability of the ratio hitting 2.5 percent is extremely low,” he said.

Despite local government debt also raising wide concerns, he said government debt accounted for less than 60 percent of GDP, the lowest level among all countries worldwide.

China continues to deepen fiscal and taxation reform, which will redefine the debt responsibilities of central and local governments. The central government will repay a considerable part of local government debt with infrastructure development, he said.

As a large part of government debt has been generated via local government financing vehicles on physical assets, China could turn its debt into corporate debt by transforming local government financing vehicles into companies or turn the debt into project financing with the introduction of private capital.

Cao Yuanzheng, chief economist, Bank of China Ltd