April 20, 2017 10:00 am JST

Xiao Minjie: China's Xi Jinping unveils plans for Xiongan New Area

The new economic zone will be big, but will it have Shenzhen's spark?

China's new special economic zone to be developed in Hebei Province, surrounding Beijing, is likely to attract many high-profile domestic companies and government bodies. Whether it can become a driving force of economic reform across the country, however, remains to be seen.

The Communist Party's Central Committee and the State Council announced in a joint statement on April 1 that a new district called the Xiongan New Area would be created in the northeastern province.

Few people had heard the name Xiongan before the announcement, though it is widely known across China now.

In some ways, history is repeating itself. When the creation of the Shenzhen Special Economic Zone was announced in August 1980, many people in northern China did not know where it was and could not read the character for "zhen" correctly.

When the Xiongan New Area was unveiled, however, cars poured in from Beijing and neighboring cities, according to media reports. Housing prices in sleepy towns nearby, such as Xiongxian, Rongcheng and Anxin, shot up overnight.

On April 5, when the Shanghai stock market reopened after the Qingming (tomb sweeping) Festival, many "Xiongan stocks," such as infrastructure companies, went up by the daily maximum.

At present, there is little in the way of concrete plans for Xiongan other than the name, leading to questions over the boom in the property and stock markets.

A "SPECIAL" SPECIAL ZONE China has 19 state-level new development districts, but Xiongan is the first to be authorized jointly by the Central Committee and State Council. Why does the government of President Xi Jinping attach so much importance to the new district?

Xi and his close confidant Li Zhanshu, director of the General Office of the party, launched their hugely successful careers in Hebei, so they both have a personal attachment to the province. With this high-level backing, it is safe to assume the "millennial plan," as it is called in the April 1 statement, will be successful. Large state-owned enterprises at both the provincial and national levels have said they will be involved in the zone.

The statement, moreover, positions Xiongan on a par with the establishment of the Shenzhen Special Economic Zone in the 1980s and the Pudong New Area in Shanghai about a decade later. The Xiongan boom follows this pattern.

What are Xi's expectations for Xiongan?

The government may be considering accelerating the development of the metropolitan economic zone, which includes Hebei and Tianjin, by letting them take over some of Beijing's functions in hopes of easing congestion and other problems in the capital. But it seems more likely that Xi's main goal is to spread China's economic growth to the northeast and elsewhere from the booming coastal areas.

Xi's first term as general secretary of the Communist Party, a post he assumed at its 18th National Congress in 2012, will end this fall.

But the reform plan adopted at the Third Plenum of the Central Committee in 2013 has made almost no substantive progress. Key economic reforms, such as those dealing with the family registration system, state-owned enterprises and regulations, have made little headway in the face of resistance from vested interests.

The Xi government has also failed to tackle pollution, real estate bubbles and other economic problems that have angered the public. The establishment of a special zone to dispel the sense of political and economic stagnation has an air of deja vu, but so far, concerns about the outlook for Xiongan are muted.

Shenzhen and Pudong have been successful mainly because tax and other preferential measures attracted foreign businesses. Shenzhen and Pudong were oriented toward China's open door policy from the start. Xiongan, by contrast, offers little to foreign companies, partly because it is far inland.

The area will probably become a modern city, full of high-rise buildings. The central government can order big state-owned enterprises, government bodies and universities into the district. The key question is how to foster a spirit of reform and openness. The project needs to offer a grand design to overcome fears that it will become a "red" special zone -- one that is led by the government and state-owned enterprises.

When Shenzhen was created, there were neither vested interests such as large state-run enterprises, nor dubious motives of the sort seen in speculative real estate investment. A rocky road may lie ahead for the Xiongan New Area.

Xiao Minjie is a senior economist at SMBC Nikko Securities. He is the author of "Ninki Chugokujin Economist Niyoru Chugoku Keizai Jijo" (The Chinese economic situation analyzed by a popular Chinese economist).

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