Xi approval fuels frenzied hopes for new China economic zone

XIONGXIAN, China/BEIJING: Like many residents of Xiongxian county, a polluted corner of Hebei province, 17-year-old Liu Zipeng has been giddy with excitement since China announced plans this month for a vast new economic zone backed by President Xi Jinping himself.

“I am so happy - I don’t need to move to Beijing or worry about getting a wife anymore,” Liu said with a laugh. Such are the hopes for the area, about 100 km (60 miles) southwest of Beijing, that authorities quickly banned property sales to quash a speculative frenzy.

While China has set high expectations by touting the Xiongan New Area as a successor to zones in Shenzhen and Shanghai that helped make China an economic powerhouse, the force of Xi’s endorsement could help it flourish where other new development areas failed to match the hype.

In a sign of Beijing’s intent, Xu Qin, the former mayor and Communist party boss for Shenzhen, was named acting governor of Hebei province on Friday, with analysts saying it is likely he will be tapped to lead development of Xiongan. Once a sleepy fishing village, Shenzhen, bordering Hong Kong, became an economic juggernaut after being declared a special economic zone in 1980.

Details for Xiongan, planned eventually to stretch across 2,000 square kilometres, an area almost as big as Tokyo, remain sketchy. It is pitched as an environmentally friendly city housing some of Beijing’s relocated “non-capital functions”, with hopes to attract high-tech industries. Nearly 30 large state enterprises including Petro-China and China Shipbuilding Industry Corp have expressed interest, though no specific relocation plans have been announced.

The three counties that make up the area, Xiongxian, Anxin and Rongcheng, are home to about a million people as well as wheat fields, light manufacturing and heavy pollution - endemic in much of Hebei. But unlike Shenzhen and Shanghai’s Pudong, the development of Xiongan is not expected to be accompanied by major economic reforms, and its landlocked setting is a transportation disadvantage.

“Natural market forces would probably not have chosen this place. But if the central government backs it with unlimited resources, it could become whatever it wants to be,” said Steven McCord, head of research for North China at real estate consultancy Jones Lang LaSalle.

The plan fits into a broader regional integration push for the cities of Beijing and Tianjin and Hebei province, dubbed Jing-Jin-Ji, which has been spearheaded by Xi since 2015 to tackle the “big city disease” plaguing Beijing, a crowded and polluted city of 22 million.

But Jing-Jin-Ji’s progress has been slower than hoped. “It’s been hard to get traction getting Beijing, Tianjin, and Hebei to work together seamlessly,” McCord said.

Xiongan could be a political and geographical “clean slate” to generate more jobs and economic stimulus for North China, he said.

Xi himself visited Anxin county in late February, which only became public when China announced plans for Xiongan on April 1. Morgan Stanley’s base scenario foresees 133 billion yuan ($19.3 billion) in additional fixed asset investment annually over 15 years to build Xiongan, equivalent to just 0.24 percent of China’s 56.2 trillion yuan of nationwide fixed asset investment last year.

Mixed record

While the Shenzhen and Shanghai economic zones thrived, some similar schemes in China have fallen short of expectations. Caofeidian, also in Hebei, was promoted by former President Hu Jintao as a new industrial zone in 2008, but development foundered as debt accumulated.

Authorities have been trying to give Caofeidian another push to upgrade its industries to become a driver of Jing-Jin-Ji’s integration, but competition among provinces has been a drag on progress.

“Caofeidian had central government support, but it was a long way from being a national-level special economic zone. Its importance was definitely not at the same level that Xiongan is seeing now,” said He Jun, head of macroeconomic research at Anbound Consulting.

“Xiongan’s biggest advantage is that it has strong support from the central government.” He remains doubtful that Xiongan will emulate Shanghai or Shenzhen due to its geography and the greater openness of China’s economy now, but the political leadership seems intent on making it succeed. — Reuters