Economy, Talking Point

The seat of power

In a gargantuan project, Xi Jinping orders that Xiongan becomes the ‘New Beijing’


Yellow marks the spot where the vast new city of Xiongan will be

France is nothing but Paris and a few distant provinces which Paris has not yet had time to swallow up,” the philosopher Montesquieu wrote to a friend in 1740. The power of Paris had swelled, and it housed the same population as the rest of the kingdom. It was home to nobles, industrialists, thinkers and publishers – the centre of politics, economics, culture and everything else that mattered.

When Parisians rose to overthrow the ruling regime in 1789, their revolutionary fervour swept across the entire country, a process that is documented in Alexis de Tocqueville’s The Old Regime and the Revolution. The treatise was written one and a half centuries ago but it has been a bestseller in modern China too. Why? Since being appointed as anti-corruption tsar in 2012, Wang Qishan has made it essential reading for Party cadres, instilling a sense that revolutions can occur in periods of rising prosperity but growing inequality.

And now China’s urban planners seem anxious to heed another of Tocqueville’s history lessons – the need to prevent the country’s fate from being hijacked by an overly dominant capital.

A groundbreaking plan has been announced to make Beijing a less congested place, with many of its existing functions to be diverted to a new city that – on completion – will be three times as big as the city of New York.

What is Beijing’s new plan?

The city government has been under increasing pressure to deal with what it calls “capital city disease” – overpopulation, pollution and traffic jams (among other urban blights). That’s why the authorities have been pressing ahead with the Jing-Jin-Ji integration plan to move a number of political and economic functions from Beijing to nearby Tianjin and into Hebei province (see WiC294). Some government offices have already been moved to the eastern suburbs in Tongzhou and speculation had been rife that Baoding, historically a must-conquer spot for any army invading the Chinese capital, would also be made an “auxiliary” political hub (see WiC231).

On April 1 the plans for Baoding were more fully fleshed out, when the authorities announced that the Xiongan New Area will be established on the outskirts of the city to “phase out functions from Beijing that are not related to the capital”.

The new city is about 100 kilometres southwest of downtown Beijing, or two hours’ drive (though expect a high-speed railway to be installed in future). It sits at the third corner of an equilateral triangle of territory incorporating Beijing and Tianjin, covering three existing counties of Xiongxian, Rongcheng and Anxin, in a rural area near one of the largest freshwater wetlands in northern China. Planners say the city will spread across an area of around 100 square kilometres initially. In the longer term it will grown much bigger to 2,000 square kilometres, or about twice the land area of Hong Kong.

What’s so special about Xiongan?

Under China’s centrally-planned economy, it hasn’t been uncommon to see special development zones built from scratch. Caixin Weekly calculates the State Council has approved 19 such “new areas” at the national level since 1992, when the Pudong New Area in Shanghai was set up on farmland on the other side of the river from the Bund.

But news of the Xiongan New Area had journalists and social media buzzing because of the unusual style in which the plan was announced – the first of its kind to be jointly endorsed by the Party’s ruling Central Committee and the Chinese cabinet. No wonder then that state broadcaster CCTV spent seven minutes of its major newscast on Sunday explaining the plans for the new city. “The decision to set up the new area is a strategy crucial for a millennium to come,” the news channel trumpeted. And in a broad hint that Xiongan is the brainchild of President Xi Jinping, the People’s Daily hailed the decision as a “major historic and strategic choice made by the Party with Comrade Xi Jinping as the core”.

Xi’s predecessor Hu Jintao was never described as a “core” leader, although Deng Xiaoping and Jiang Zemin were titled in this way. And one of the messages in the media response was that Xi wants a new city to rival Shenzhen and Pudong, two special economic zones founded by Deng and Jiang respectively.

Sections of the state media made the same point. “China will develop a new area in the northern region parallel [in importance] to the Shenzhen Special Economic Zone in the south and the Shanghai Pudong New Area in the east,” Xinhua noted of Xi’s grand ambition, while other newspapers saw significance in the appointment of Xu Qin, the Party secretary and mayor of Shenzhen, as Hebei’s new provincial deputy Party secretary. Xu, who will be in charge of Xiongan New Area, is believed to be a close aide of Xi.

How did property investors react?

The finer points of Xi’s political legacy were subsidiary concerns for the real estate speculators swooping on the area in question.

Property prices are all about location and owners in Xiongan have hit the jackpot. As Beijing News has put it, they are now able to “rewrite their addresses from Hebei outskirts to Beijing downtown”. Before Saturday’s announcement, Xiongxian, Rongcheng and Anxin had a combined population of 610,000. Besides some wetlands tourism, the predominant economic activity was uninspiring – the plastic packaging industry. The gross domestic product of the three counties last year was only Rmb20 billion ($2.89 billion), or less than 1% of Beijing’s GDP. “There is not a single skyscraper. All commercial buildings are five storeys high and occupied by small enterprises. Residential ones are no taller than 10 floors,” noted a reporter from Hong Kong’s TVB, one of the herd of media outlets that flocked to Xiongan this week.

The unexpected announcement also saw real estate agents swarming into the new zone. According to Caixin Weekly, the average residential price in the area more than tripled within the first day, jumping from Rmb6,000 per square metre to more than Rmb20,000. The main road into Xiongan was congested by an influx of homebuyers from the Jing-Jin-Ji region and most local hotels soon faced full occupancy. Such was the frenzy that the local authorities were forced to order a moratorium on property transactions and sales offices were closed. But TVB reports that this hasn’t deterred the speculators and the sales centres are still crowded with homebuyers and agents.

Even a residency permit (hukou) in the Xiongan New Area has become a prized asset. One of the most widely-forwarded items of news on social media this week has been a lonely hearts ad from a 53 year-old in Xiongan. The divorced man has seen his pulling power boosted by a piece of farmland he owns in the area. His preference in a partner? “Single women younger than 25, preferably a graduate from an American or British university”.

The reaction in the stock market?

The prospect of a new growth engine in northern China instilled a feel-good factor in investors, even though the Xiongan project may take 20 years to complete.

Following Saturday’s announcement, Securities Daily said about 15 research reports had been issued on the Xiongan New Area and the companies that could benefit from the subsequent boom. That fuelled investor enthusiasm further still. Take BBMG, a cement producer operating in the Jing-Jin-Ji region. Its Hong Kong-listed shares climbed as much as half in the session after the plan was announced. Beijing Enterprise Water Group and Tianjin Port Development all rose nearly 10% too.

The Shanghai and Shenzhen bourses were closed on Monday and Tuesday because of the Tomb-Sweeping Festival but when the A-share market resumed trading on Wednesday, Sina Finance reported that nearly 100 firms “with a Xiongan concept” had climbed by their one-tenth daily limits. Most of these companies are operating in the real estate, transportation or utility sectors but some of them are simply headquartered in Hebei.

For real estate developers in Xiongan, uncertainties remain. A high-level preparatory committee has been set up to take charge of the project and it issued a directive on Tuesday stressing that the transfer of land ownership in Xiongan would be subject to “stringent legal restrictions”. It isn’t clear what this may mean, although a research report by Minsheng Securities suggests that special zones like Xiongan have been treated differently in the past.

“New policies for property development are likely to be unconventional in the new area,” it warned.

Who’s in and who’s out?

Even developers with large land reserves in Xiongan can’t count on surefire returns. China Fortune Land, for one, had agreed to develop two major projects with local governments across an area of more than 500 square kilometres. In light of the speculation that previous land-transfer contracts in Xiongan would become invalid after Saturday, the company said the two projects in question are subject to change, although it made clear its willingness to “fully operate in alignment with the national strategy”.

National Business Daily stirred the pot further by suggesting that the most effective means for building a new city is to tear all the existing infrastructure down first. That’s why local government officials have been preparing how to handle the relocation of local residents, the newspaper said. Lower tech and pollutant-heavy industries may also find there’s no place for them in the new area. According to Beijing News, there are about 2,000 packaging firms in Xiongxian and most of them may be relocated too.

Conversely, other firms may prove reluctant to quit Beijing for their new home in Xiongan. A list of 87 Beijing-headquartered state firms (including the State Grid and CNPC) has been making the rounds on social media as “state pioneers and trailblazers” set for a move, although the Global Times said the list is unconfirmed and that most SOEs have not been informed of a decision to relocate them.

Some prestigious universities, namely Peking University (Beida) and Tsinghua University, could also be candidates for a change of scene, according to the Beijing News (to put this in perspective, imagine if the British government decided to entirely relocate the universities of Oxford and Cambridge to greenfield sites). “Should Beida be called Xiongda in the future?” one student wrote on Beida’s weibo account.

So what is Xi’s vision?

Visualising how Xiongan will look is something of an effort. China’s towns and cities change quickly and grow fast. After all, it only took Shenzhen about 20 years to become one of the four first-tier cities (with Beijing, Shanghai and Guangzhou).

In the meantime efforts are already being made to describe Xiongan in a meaningful way. Beijing News says the government wants something similar to Silicon Valley or Haifa in Israel, where tech industries cluster, and there was also talk in the People’s Daily of unleashing innovation and entrepreneurship.

But there were caveats to the People’s Daily’s predictions, including a pivotal role for the Party in making Xiongan a success.

“From ancient to modern times, in China and abroad, you cannot just allow the ‘invisible hand’ of the market to rule when developing a capital [city or district]; a metropolis needs the government’s scientific planning,” the newspaper observed.

Other news outlets said Xiongan will evolve into an “environment-friendly smart city” by the time that China is due to host the Winter Olympics in Hebei’s Zhangjiakou in 2022. Of course, by then Xi Jinping’s second five-year term is supposed to be drawing to a close. Commentators have speculated that Xi might want a third term in his career as leader and that his backing for Xiongan is one of the best indicators yet that the usual 10-year tenure for presidents may not apply this time.

An Olympic Games held under a blue sky in the wider Jing-Jin-Ji megalopolis would be the perfect stage for Xi to showcase the achievements of his administration. According to former US Treasury Secretary Henry Paulson, Xi already sees the Jing-Jin-Ji plan as “one of his legacies”. In his book Dealing with China Paulson recalled: “As he [Xi] personally told me in July 2014, ‘This was my personal initiative’”.

That reminds WiC of a story former British deputy prime minister Michael Heseltine tells of a meeting with a senior Chinese delegation in the late 1970s. In this closed-door affair, Heseltine was given the world scoop that the Chinese planned to ditch their Maoist economic model in favour of one based more on market-based reforms. But when he told his cabinet colleagues the news, no one gave Heseltine’s revelations much credence.

We all now know what happened next. The moral: when the Chinese authorities say they are going to do something transformational, it’s best to take heed.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.