China Pushes New Development Plan – Analysis

By Michael Lelyveld

China’s government has decided to launch one of the country’s biggest development projects with little or no input from the locality or the residents it would affect.

On April 1, the Communist Party of China (CPC) Central Committee and the cabinet-level State Council issued a circular announcing plans for the huge urbanization project to be known as the Xiongan New Area, 100 kilometers (62 miles) southwest of Beijing.

The plan is part of an effort to shift non-capital functions out of congested Beijing by building a modern city center covering three sparsely settled counties of neighboring Hebei province.

Compared with Beijing’s population of about 22 million, the three counties of Xiongxian, Rongcheng and Anxin have a combined 300,000 residents with a gross domestic product of just 20 billion yuan (U.S. $2.9 billion), state media said.

Beijing’s GDP stood at 2.49 trillion yuan (U.S. $361.8 billion) in 2016, the 21st Century Economic Institute estimated last month.

China’s central government had already announced plans in 2014 to ease Beijing’s environmental problems by capping the population at 23 million, moving some businesses like wholesale food markets out of the capital and coordinating development with Hebei and the city of Tianjin.

In 2015, Beijing officials unveiled plans to create a “subsidiary administrative center” in the Tongzhou suburban district to the southeast as a partial solution to smog problems and other “urban diseases.”

Development of the Xiongan New Area is the next and likely much larger step in the process of reducing growth pressures on Beijing.

Plans call for initial development of a 100-square-kilometer (38.6-square-mile) zone with eventual expansion to 2,000 square kilometers, making it larger than the existing Shenzhen Special Economic Zone and the Pudong New Area of Shanghai.

Investment in Xiongan is expected to reach 4 trillion yuan (U.S. $580 billion) over the next two decades, the official English-language China Daily reported, citing a UBS Securities research note.

That total would put the investment on a par with the massive 4-trillion-yuan economic stimulus program announced by the government in response to the global financial crisis in 2008.

New opportunities for investors

Reports in China have focused on financial opportunities for publicly traded companies and investors in the new development area, as well as the excitement and surprise of local residents at the central government’s choice.

China Daily recorded the reactions of one local property owner upon hearing the news.

“First she was in disbelief. Then she was amazed. Then she realized everyone around her was talking about the same thing,” the paper said. The resident was reportedly “overjoyed.”

Official media reported that opportunity-seekers and state-owned enterprises have flocked to the area with inquiries about establishing businesses and offices there, although the government has said little about what its priorities are for the new zone.

“I hope specific plans for the area will be made public as soon as possible,” the official Xinhua news agency quoted one interested restaurant owner as saying.

“Location of the central area and industrial layout, among other details, have yet to be published,” the report said.

Speaking four days after the initial announcement, Hebei party chief Zhao Kezhi said the new zone would be “an innovation hub and a cluster for high-end, high-tech industries.”

But aside from the expected benefits, the announcement highlighted the central government’s process in making major investment decisions and economic policies.

Although the plan was reportedly considered for months, it appears to have been closely held among members of the Central Committee and the State Council, then sprung upon local citizens and provincial officials.

The official statement suggested that the decision was made ultimately by President Xi Jinping, who sees Xiongan as “a demonstration area for innovative development.”

The circular called it “a major historic and strategic choice made by the CPC Central Committee with Comrade Xi Jinping as the core.”

“That seems to be a general characteristic of Xi Jinping’s leadership. He wants to concentrate power in the party and in the top levels of the party,” said Lowell Dittmer, a China scholar and political science professor at University of California Berkeley.

On April 13, Xinhua published another report stating that plans for Xiongan “are becoming more clear [sic],” but it provided few new details. The purpose was apparently to counter the impression that the plan was not carefully considered or complete.

“Under Xi’s direct guidance, the process began in February 2015, with the final proposal deliberated and agreed by the Standing Committee of the CPC Central Committee’s Political Bureau on March 24, 2016,” the report said.

Xinhua did not explain why local officials and residents were kept in the dark for over a year.

Months of secrecy

The project emerged less than three weeks after China’s annual legislative sessions, yet deputies of the National People’s Congress were apparently given no clue of the plan in the works.

The sudden news after months of secrecy set off a gold rush of real estate speculation as investors flooded into the backwater counties, bidding up property prices.

The central government has been trying for years to safely deflate the speculative bubble in big cities like Beijing. The last thing it wants is the same problem in the new development zone before it is even built.

Within three days of the announcement, authorities in the new area reported 765 cases of real estate violations, arrested seven people and ordered 71 sales offices to close, state media said.

The local Hebei Daily reported that seven suspects were charged with “illegal farmland occupation, illegal business operations and disturbing public order.”

Local governments have moved quickly to suspend new property sales and impose restrictions on development and residential permit registrations, the BBC said.

In an apparent contradiction, Xinhua’s report on April 13 stated that “purchases and projects related to land and property and changes to household registration have been blocked in the three counties since June last year.”

Last week, Zhao voiced support for the as-yet undisclosed construction plans in the area, indicating that they would involve displacement of citizens and businesses.

Policy making should be based on public opinion and “problems during the process of residents’ and enterprises’ relocation should be properly solved,” Xinhua quoted the provincial party secretary as saying.

The real estate sector should be under the “most strict [sic] control to prevent property speculation,” Zhao said.

Poorly coordinated announcement

But the real estate frenzy and the arrests suggest the announcement was poorly coordinated with provincial and local officials. It may have been accelerated by the need to show the public that the government was taking steps in response to Beijing’s winter smog crisis.

Unfortunately, the undertaking of such a huge development in a low-intensity area seems bound to have environmental consequences of its own.

It is unclear how closely the Xiongan New Area project will adhere to principles laid out in the government’s “national new-type urbanization plan” and a landmark joint study by the State Council’s Development Research Center and the World Bank in 2014.

The study called for big cities to “boost their role as gateways to the world, … moving increasingly into services, knowledge and innovation.” The concept may correspond roughly to the goal of ridding Beijing of non-capital functions and polluting business activities.

But the 2014 blueprint was also highly critical of urban sprawl, arguing that greater density “would reduce the energy intensity and car use in cities, thus improving environmental sustainability.”

The recreation of non-capital functions in a new 2,000- square-kilometer area seems likely to become a surefire formula for more urban sprawl.

The implied contradictions speak to the mixed motives behind any big investment plan in China that must gain political support.

While developing Xiongan and the Beijing-Hebei-Tianjin areas to ease the pollution burdens on the capital megacity, the plans are also seen as economic stimulus projects and investment opportunities with their own environmental impacts.

“China initiated in 2014 a strategy to integrate the development of Beijing, Tianjin and Hebei for a better economic structure, cleaner environment and improved public services,” said another Xinhua report on April 6.

“With that strategy, authorities intend to transform the region into a new growth pole as China’s economy slows,” the report said.

Lowell Dittmer said the announcement of the new project seems consistent with the government’s economic growth mission.

“They want to keep the economy booming at least through the party congress later this fall,” he said.


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