HONG KONG -- Beijing's recent announcement of the creation of a new economic zone in the Xiongan region has resulted in a rollercoaster ride for many related stocks in Hong Kong and China, much to the chagrin of mainland authorities.
The buying frenzy was sparked on April 1 when Beijing revealed its plan to build an up to 2,000-square-kilometer new economic district called Xiongan New Area in the outskirts of Beijing.
In the plan, some government departments and headquarters of state-owned enterprises will be relocated to Xiongan, a move that could alleviate air pollution, traffic congestion, and overpopulation in Beijing. Developing Xiongan, at the center of the three metropolises of Beijing, Tianjin and Hebei's capital Shijiazhuang, is also part of Beijing's plan to integrate the three provinces.
Some perceived it as a pet project of President Xi Jinping whose aim for Xiongan is to match the Shenzhen special economic zone and Pudong New District in Shanghai, two areas that were masterminded by former strongman Deng Xiaoping. In particular, some see this as Xi's strategy to increase his influence and power ahead of the National Congress of the ruling Communist Party this autumn.
Nonetheless, related stocks surged after the announcement. Shares in Beijing Building Materials Group, Hebei-based automaker Great Wall Motor and property developer China Fortune Land Development, Tianjin Port and Air China all trended upward soon after, on the news. The Hong Kong Economic Times reported that real estate prices in the area rose to more than 20,000 yuan per sq. meter a day after Beijing's announcement, from 4,000--8,000 yuan per sq. meter last year, despite government efforts to curb property transactions.
Beijing authorities acted to quell the speculative moves by mid-April. "We will resolutely clamp down on any attempt at disturbing the market order and never relent in our fight," said Liu Shiyu, chairman for the China Securities Regulatory Commission, on April 15 at a meeting at the Shenzhen stock exchange.
Positive analysis by some investment banks also lent support to those shares. Morgan Stanley estimates that Xiongan could receive total investments of 1.2-2.4 trillion yuan in the next 10-20 years. UBS Securities says it expects Xiongan's total fixed asset investments to reach up to 4 trillion yuan over the next 20 years, which would suggest a substantial increase in demand for commodities such as cement and steel, and infrastructure.
Others are more sanguine about Xiongan's prospects. Li Xiong, Daiwa Capital Markets strategist told Nikkei Quick News: "This is not the first time investors have heard about the relocation idea of Beijing's non-capital functions, but we still haven't heard beyond a general idea."
Bank of America Merrill Lynch echoes this view. Although the economist team led by Helen Qiao sees that the project will be a boost for Hebei, it also noted in a report earlier this month that "it is still too early to tell its impact on China as a whole." The investment bank predicts that impact on the overall economy will be much less significant, "unless it manages to nurture and develop more self-sustainable growth drivers in the technology or service sectors."
Boom in Greater Bay Area
Likewise, the Hong Kong market was also boosted by news on April 11 that Chinese Premier Li Keqiang had pledged to draw up an economic integration plan for the "Greater Bay Area" which includes Hong Kong, Macau, and nine cities in Guangdong Province this year.
Hong Kong-listed shares of related companies, including port and amusement park operator Zhuhai Holdings Investment Group, real estate developer Shenzhen Investment, marine transportation Chu Kong Shipping Enterprises, and logistics company Guangdong Yueyun Transportation all surged the day following Li's announcement.
But this sudden influx of funds was not necessary good news for these companies. Fourteen mainland-listed companies including Beijing Building Materials Group, China Fortune Land Development, Beijing Hanjian Heshan Pipeline and Tangshan Jidong Cement said on April 13 that they have applied for voluntary trading suspensions.
Beijing Building Materials Group said in a regulatory filing to both the Shanghai and Hong Kong stock exchange websites that from April 5 to 7, "the increase of the closing prices of the A shares [or domestic shares] deviated by more than 20% [on a cumulative basis]." According to the Shanghai listing rules, the fluctuation "falls within the circumstances of unusual movements in shares trading," it added.
Companies also tried to temper investor expectations. China Fortune Land Development on April 15 posted a regulatory filing, saying "we have not acquired any assets for residential building or not yet began infrastructure development in the [Xiangan] area." As a result, the company's share price sank to its daily floor of 10% on April 17. Similarly, investors quickly pulled their money from other such companies including Tianjin Capital Environmental Protection Group which also announced that "the new city project at this moment has no influence on our business."
Government mouthpiece Xinhua, too, sought to dampen investor enthusiasm by saying that the long-term estimate of Xiongan's population is only around 2-2.5 million, much lower than analysts' forecasts.
Hot-money flows into the Greater Bay Area-related companies is also showing signs of fatigue. Some are now saying that they find it hard to see further cooperation between the three regions, given that Hong Kong and Macau operate under the "one country, two systems" framework but Guangdong follows mainland rules including capital control.
Chinese investors are limited in what they can invest in. Their access to the overseas market is shut by capital controls to stem any outflow while there are less and less investment options in the domestic market. They also face curbs imposed on real estate investments, while high-interest wealth management and insurance products are under strict control by the government.
Rosa Lee, senior vice president of Grand Finance Group, told NQN: "The new development project became the only bright spot for Chinese investors."
NQN staff writers Hirohumi Tsuge and Chinatsu Hayashi, and Nikkei staff writer Mariko Tai contributed to this story.