On April 1, the officialdom in the mainland suddenly announced that the Xiongan New Area in Hebei province, a tiny rural county 130 kilometers southwest of Beijing, will be designated as China’s secondary capital, referring to it as a monumental state project that is going to have far-reaching implications for the entire nation “over the next millennium”.
While it remains to be seen whether Xiongan will truly emerge as China’s next megacity as the authorities claim, the announcement produced an immediate effect: within 48 hours, tens of thousands of cash-rich and bullish speculators flocked to the tiny county scrambling for local properties in expectation of a huge surge in home prices in the days ahead.
However, the ongoing hype surrounding the Xiongan New Area project and the investor stampede could turn out to be just another passing fancy. Over the years, the Chinese government has built dozens of new metropolitan areas and free trade zones (FTZs), with the majority ending up becoming “white elephants” that are neither economically viable nor sustainable.
There are already 11 “world-class” FTZs in the mainland and their number continues to grow. On the provincial level, there were 3,500 government-sponsored new metropolitan areas across the nation as of May 2016.
It is estimated that these newly developed areas are large enough to house as many as 3.4 billion people, or nearly half of the world’s population.
Over the past several decades, whenever a new leader came to power in China, they would initiate some major state-sponsored projects to develop “new zones”, which, they hoped would go down in history as their political legacy.
For example, after former paramount leader Deng Xiaoping consolidated his power within the party, he launched the Shenzhen Special Economic Zone in 1980. After former president Jiang Zemin assumed power, he immediately ordered the construction of the Pudong New Area in Shanghai in 1992 and the Binhai New Area district in Tianjin in 1994.
It appears President Xi Jinping is determined to follow in the footsteps of his predecessors and leave his mark on history by building a “new zone” of his own.
However, given the bitter lesson of the Shanghai FTZ launched in 2014, which was the brainchild of Premier Li Keqiang and generated a lot of hype at the beginning but later turned out to be a complete flop, it is questionable whether the proposed Xiongan New Area can really fulfill Xi’s ambitious goals.
According to the official announcement, the Xiongan New Area will serve as Beijing’s extension and a de facto secondary capital once completed so as to ease overcrowding in Beijing.
The problem is, the Chinese government had designated nearby Tongzhou city as a secondary functioning capital in 2015. Why would China need two secondary capitals at the same time?
The Xiongan New Area project is a typical example of how state development policy in China is often dictated by the wishes of the top leader rather than by necessity or real demand.
Only time will tell whether the Xiongan project will eventually end up being just another big disappointing flop like the Shanghai FTZ.
This article appeared in the Hong Kong Economic Journal on April 6
Translation by Alan Lee
[Chinese version 中文版]
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