Decision announced to set up Xiongan New Area
April 10, 2017 Category Macro-economy, Weekly
On April 1, the Chinese government and the Central Committee of the Chinese Communist Party announced their decision to set up the Xiongan New Area in Hebei province, about 120 kilometers south-west of Beijing. The zone will be formed by the three counties of Xiongxian, Rongcheng and Anxin. The new zone will help relieve the burdens on Beijing as a metropolis, and create a new growth pole for China. It will also play a significant role to advance the coordinated development of the Beijing-Tianjin-Hebei region. By taking over some functions of Beijing, it will alleviate population growth, traffic jams and air pollution in the capital. It would also avoid overdevelopment in Beijing. The establishment of the area was described as a “major historic and strategic choice” that would be “crucial for the millennium to come”.
The Chinese government is exploring new development models for big cities by diversifying their functions and easing their burdens, which will help solve environmental issues and promote the development of surrounding areas. The Xiongan New Area is to become a role model for green, creative, high-quality and high-end development. The establishment of the area has been hailed as an important and strategic plan of the Chinese leadership to explore a completely new model for China’s urban development. It is also part of reforms to tackle the problems that have emerged during the rapid development of the nation’s economy. Xiongan will become the corner of a triangle with the other two corners Beijing and the port city of Tianjin. The State Development & Investment Corp (SDIC) said that it will tap its expertise in the fund business and capital management to help support key projects in the new area. The Xiongan New Area will have the same national significance as the Shenzhen Special Economic Zone, established in the 1980s, and the Shanghai Pudong New Area, created in the 1990s.
The local governments of Xiongxian and Rongcheng counties have frozen all real estate sales after the central government announced the establishment of the Xiongan New Area to prevent speculation. Less than a day after the announcement, real estate prices had jumped from CNY5,000 to CNY20,000 per square meter in Rongcheng county. Even in Wenan county, 30 kilometers away from Xiongxian county, and not included in any developing plans, housing prices jumped from CNY4,700 to CNY5,500 per sq m. Property developers in Bazhou, another place close to the Xiongan New Area, offered prices between CNY17,000 and CNY20,000 per sq m, and many demanded that buyers make full payment. Seven people have been arrested for real estate violations in the Xiongan New Area, sending strong signals to investors that the government intends to fend off risks from distortions in the property market. The Preparatory Committee for the Xiongan New Area has discovered 765 cases of real estate violations and shut down 71 sales offices. “The area will implement the most stringent control of the real estate sector,” Zhao Kezhi, Communist Party Secretary of Hebei province said. As of April 6, all 10 counties in the Xiongan New Area and neighboring regions had launched new home purchase policies to stop speculative buying. They have unveiled purchase limits, such as suspending residents with more than three residential properties from buying houses and apartments and requiring an up to 60% downpayment from buyers who own more than one apartment. In Wenan and Bazhou, those without local household registration, or hukou, can buy only one apartment with a downpayment of at least 50%.
Vice Premier Zhang Gaoli called for a “reasonable pace of development” in the new area, stressing that large-scale real estate development and illegal construction should be banned, and the pace of development should be reasonable. He added that Xiongan will be an innovation hub and a cluster for high-end, high-tech industries. Development of real estate is not a priority. “It is estimated that Xiongan’s total fixed asset investment could reach CNY4 trillion over the next two decades,” UBS Securities wrote in a research note. There will be a substantial demand for cement, steel, rail and transportation. The area should have a “world-class transport system” that is green and smart. Transport should mainly focus on rail and bus transit options, complemented by bike-sharing and other “green, advanced and highly intelligent” transportation options, said Lu Huapu from Tsinghua University and a Member of the Expert Committee advising the coordinated development of the Beijing-Tianjin-Hebei region. Smooth and easy transit between Xiongan, Beijing and Tianjin would be essential to attracting high-level talent from those cities and key to the new area’s development.
The new area’s establishment also had an impact on the stock market, with the share price of Beijing-based cement manufacturer BBMG Group Co surging by 23.84% on the Hong Kong Stock Exchange during the opening quotation on April 3. The trading price of Shijiazhuang-based China Suntien Green Energy Co, a new energy product supplier, grew by 23.33%. On April 6, shares on the Shanghai stock exchange showed the biggest daily gain in eight months, led by stocks related to Xiongan New Area. Shares of more than 30 companies surged by the daily 10% limit. Cement producer BBMG Corp soared by the 10% daily cap. So did Tianjin Port Co and trading company Langfang Development Co. Li Yimin, Senior Equity Researcher at Shenwan Hongyuan Securities Co, predicted potential infrastructure investment in Xiongan may hit nearly CNY56.3 billion in the next two years and surge to CNY1.9 trillion by 2030.
Shen Jianguang, the Chief Asia Economist at Mizuho Securities, said the Xiongan New Area was at the heart of President Xi Jinping’s Beijing-Tianjin-Hebei integration plan. The “Jing-Jin-Ji” plan is one of the President’s two main development initiatives, alongside the “One Belt, One Road” trade and infrastructure strategy. Former Shenzhen Mayor Xu Qin was appointed Hebei’s Deputy Communist Party Secretary to help the new district’s development. The zone will start with an initial area of 100 sq km, slightly bigger than Hong Kong island, and eventually cover an area of 2,000 sq km, about the same size as Shenzhen. The new zone will be home to “non-capital functions” from Beijing, a term that covers institutions, schools, hospitals, markets and factories. The area is far less developed than Beijing. The combined gross domestic product (GDP) of the three counties that will form Xiongan last year was less than 1% of Beijing’s, and their total population was 1 million, compared with Beijing’s 21 million.
Some 13 central SOEs, including China United Network Communications Group Co, China Railway Construction Corp and Sinopec Group, have already held top management meetings to discuss their plans for the Xiongan New Area. Central SOEs, particularly in infrastructure, manufacturing, mining, telecommunication and transportation, are expected to be the first batch to move their headquarters and subsidiaries to the Xiongan New Area, in order to exploit the expected commercial opportunities. Currently, more than 80 of the 102 central SOEs have their headquarters in Beijing.
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