China recently announced its Xiongan New Area development plan and policymakers described it as “a strategy crucial for a millennium to come”.
In fact, since 1949, the Communist Party has only named two other projects as “a strategy crucial for a millennium”, namely the Three Gorges Project and the South-North Water Transfer Project. Both projects were initiated by Mao Zedong and implemented by former presidents Jiang Zemin and Hu Jintao after decades of debates and preparations.
This alone shows the great importance Beijing has placed on the project.
As a result, a number of Xiongan-relevant stocks soared, such as BBMG Co. (02009.HK), China Suntien Green Energy Co. (00956.HK) and China Vast Industrial Urban Development (06166.HK).
The prospect of Xiongan New Area looks promising but it will take years to realize.
The three most successful economic zones — Shenzhen Special Economic Zone, Hainan Special Economic Zone, and Shanghai Pudong New Area — all got off to a bumpy start and had all gone through periods of hardships.
Shortly after the Shenzhen Special Economic Zone was established in 1980, China’s economy experienced great difficulties; it was not until China’s paramount leader Deng Xiaoping’s south China tour in 1992 when Shenzhen started to take off.
Hainan Special Economic Zone has attracted a large number of property developers after it was set up in 1988. But the sudden boom turned into a bubble that burst quickly, leaving behind suspended building projects across the province. The excess of home supply lasted until 2010.
As for Pudong New Area, it took more than a decade before it became a financial hub.
Hoping that Xiongan will become an instant success is unrealistic. Rather than viewing it as a quick trading theme, investors should pay attention to the medium-term potential of the project, and watch out for additional policy initiatives that could be released and the infrastructure projects that would start over the next few years.
This article appeared in the Hong Kong Economic Journal on April 5
Translation by Julie Zhu
[Chinese version 中文版]
– Contact us at [email protected]