May 17, 2017 8:00 am JST

China's new city project causes a speculative frenzy

Xiongan New Area is Xi Jinping's attempt to surpass the legacy of Deng Xiaoping

ISSAKU HARADA and SHUNSUKE TABETA, Nikkei staff writers

Local real estate agencies were closed in late April because of the Chinese government's ban on property trading in Xiongan New Area, the special economic zone recently announced. © AP

BEIJING -- China is thinking big, again. The country has launched a national project to build a new city on the outskirts of Beijing, which has aroused a frenzy of speculation in the region. 

The creation of the Xiongan New Area in a rural village in Hebei Province, located some 100km southwest of Beijing, is aimed at easing overconcentration in the capital city. With a major financial institution estimating that the project will require an investment of 2 trillion yuan ($290 billion), speculative property investment is already well underway.

But while President Xi Jinping is eager to make the project one of his greatest achievements, it is possible that the historic plan could end up denting his legacy. 

Mother of all developments

Zhang Ming, a company employee in Beijing, was in Xiongxian, Hebei, returning home on April 2 when he encountered a huge traffic jam. He was surprised at all the cars, especially those with license plates from other provinces, such as Shanxi, Shandong and Yunnan.

The congestion was triggered by the state-run China Central Television's headline report at 7 p.m. on April 1 about Xi's "millenarian" plan to have the government build a city straddling Xiongxian, Anxin and Rongcheng.

The project will be undertaken in an agrarian region that is covered with fields of wheat and other agriculture. But with a new city coming in, real estate prices will undoubtedly soar, which has lured speculative investment to the region. Housing prices have reportedly jumped to 20,000 yuan to 30,000 yuan per square meter from 5,000 yuan to 6,000 yuan.

Morgan Stanley estimates that the project will involve a 15-year investment of 2 trillion yuan and push up China's gross domestic product by 0.13 percentage points to 0.19 points. Planned investment is estimated to be seven times more than the amount spent on the 2008 Beijing Olympic Games. ag

Stock prices of local real estate agencies, cement makers in Beijing and other companies expected to benefit from the project have risen sharply.

When we visited Xiongxian in late April, all of the local realty agents were closed because of the government's ban on property trading. Violators have been arrested.

Local residents are concerned that they will be evicted from their properties and are wondering if they will be compensated. Shang Jian, a resident of Anxin, said, "I want at least 8 million yuan to 10 million yuan because our house occupies 1,000 sq. meters."

At the entrance to Da Wang Zhen in Anxin, which was chosen as the first area for evictions to happen, a tent has been set up. Men stand guard there and watch for building materials being trucked in. Many residents are secretly expanding their homes in a bid to receive larger compensation payments, so the government has banned construction. 

In Xiongxian, Anxin, and Rongcheng, all plants discharging pollutants must be either closed or relocated. The owner of a plastic plant said, "Housing price increases will be meaningless if I have to close my plant."

The big move

The plan is for "noncapital functions" to be transferred to the Xiongan New Area from Beijing. While the central government will remain in the capital, research institutes, universities and state-run enterprises are among candidates for relocation.

The project is designed to ease congestion in Beijing and create an environmentally friendly city. The Chinese government reportedly studied Japan's Tsukuba Science City in Ibaraki Prefecture, east of Tokyo, as an example.

Xiongan will initially occupy 100 sq. km and eventually expand to 2,000 sq. km, according to the plan, which envisions a future population of 2 million to 2.5 million.

The new city will form an equilateral triangle with Beijing and Tianjin. There are plans to make it accessible within an hour from the two cities by high-speed rail. 

However, hurdles are high. "People in Beijing don't want to relocate to Hebei because the levels of education and medical services are lower there," a government economist said, suggesting that the huge construction project is facing a skeptical public. 

Xiongan vs. Shenzhen

Xi's Xiongan project reflects the president's wish to surpass the achievements of Deng Xiaoping, who is credited with paving the way for China's development into an economic power through his reforms and open-door policies. 

Xiongan is scheduled to occupy an area slightly larger than the Shenzhen Special Economic Zone in Guangdong Province, which Deng built up as a symbol of his nation-building efforts. Xi is calling for the creation of a new city with "global influence."

Following the announcement of the Xiongan project, China Shipbuilding Industry stated that it will relocate its head office to the new city. "We will devote ourselves to this important national strategy," the company's Chairman Hu Wenming said.

China Mobile and some 40 other large state-run companies, known as "central enterprises," have also said they will move their offices to the new city.

Xi wants to establish a special zone in a bid to demonstrate stronger leadership than past leaders by gathering competent human resources there, a Hong Kong newspaper reporter said.

Xi has picked Xu Qin, who served as the Chinese Communist Party chief of Shenzhen, to be governor of Hebei. Xi also named Yuan Tongli, former party chief of the Tianjin Binhai New Area promoted by former President Hu Jintao and other leaders, to head the Xiongan project.

In addition, Xi had Xu Kuangdi, who was involved in the establishment of the Shanghai Pudong New Area under the leadership of former President Jiang Zemin, draft the Xiongan plan.

Xi began his political career in Hebei in the 1980s and in the massive undertaking of building a major city there from the ground up, he plans to leave a legacy as one of the country's most influential leaders.

Asia300

China Shipbuilding Industry Co., Ltd.

China

Market(Ticker): SHG(601989)
Sector:
Industry:
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Trucks/Construction/Farm Machinery
Market cap(USD): 17,269.5M
Shares: 19,079.9M
Asia300

China Mobile Ltd.

Hong Kong

Market(Ticker): HKG(941)
Sector:
Industry:
Communications
Wireless Telecommunications
Market cap(USD): 226,310M
Shares: 20,475.5M

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