‘Invisible hand’ pulls handbrake on Xi’s pet project

A Chinese development project championed by President Xi Jinping has been bogged down by disputes over costs and the reluctance of businesses to relocate to the region, according to local officials and residents.

Xiong’an, located in central Hebei Province, just 130 km from the Chinese Communist Party’s leadership complex in Beijing, was designated by Xi as a priority “new area” in 2017.

The project is central to the Chinese president’s vision for a less congested and polluted capital, with hundreds of state-owned enterprises and government agencies due to relocate to Xiong’an.

It is also intended for polish Xi’s legacy, just as Shenzhen’s transformation in southern Guangdong province did for Deng Xiaoping’s.

Xiong’an, with a population of 1.3 million, is already home to one of the largest stations per floor area, which began operating in December. But it is also an economical backwater, bordered by dirt roads, drab buildings and suspended construction sites.

In a recent weekday visit, only 30 of the more than 2,200 seats in the waiting room at Xiong’an Station, which cost more than 30 billion rmb ($ 4.6 billion) to build, were busy.

“Xiong’an is a product of central planning that goes against market principles,” said Zhuang Bo, chief economist for China at TS Lombard, a London-based consultancy firm. “He had trouble taking off because the invisible hand [of the market] has a greater impact than government intervention. “

Xiong’an may be an economical backwater, but its station is one of the largest in the world © Oriental Image via Reuters Conne

Projects slated for completion by the end of 2023, when Xi is expected to start a unprecedented third term as president it will cost 146 billion rmb. But China Xiong’an Group, the main investment vehicle for local infrastructure projects, only took out Rmb 749 million in long-term loans in the first nine months of last year.

People close to CXG, controlled by Hebei’s already heavily indebted provincial government, said the company was reluctant to increase borrowing. Hebei’s outstanding public debt, excluding loans of local authority funding vehicles, was 1.1 billion rmb at the end of last year, compared to 615 billion rmb in 2017.

Rather, the cash-strapped provincial government wants the central government to fund a large chunk of construction costs at a time when Xi’s administration attempts to curb stimulus measures unleashed last year at the height of the Covid-19 epidemic in China.

“The result of the battle is slower than expected construction,” said an official from Xiong’an, who asked not to be named. “There is no guarantee that CXG can generate enough cash flow to repay the debt. Hebei should step in if things go wrong.

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Some residents also complained that Xi’s project led to sharp increases in local property prices. When the president’s vision was unveiled in 2017, speculators from all over China descended on Xiong’an to buy property.

In response, local authorities halted many housing projects, limiting supply and trapping buyers who were paying high rents while waiting for their homes to be completed.

Li Yang, a 35-year-old office worker, said his rent had more than tripled in the past four years as he waited for an apartment he bought in 2016 to be completed.

“Thanks to government policy, I spend most of my income on rents and mortgages on an unfinished house with no completion date,” he said.

Local officials, in turn, blamed the central government for Li’s predicament, saying it was up to Beijing to decide when to lift the ban. “President Xi said that we cannot start building until the use of every inch of land is clearly planned,” a housing official from Xiong’an told the Financial Times, who did not want to. to be named.

A building ban has limited the supply of housing and increased pressure on local government revenues © Oriental Image via Reuters

The building ban has also increased fiscal pressures on CXG and the local government, which depend on land sales for a large part of their income. Xiong’an government’s tax revenue was Rmb 3.3 billion last year, 25 percent below the target.

Another drag on the local economy, once known for its garment and plastic industries, has been the forced closure or relocation of more than 4,000 factories. The polluting industries did not fit Xi’s vision of a clean and green Xiong’an and had to make way for an anticipated influx of state-owned enterprises and their employees from Beijing.

Following plant closures, unemployment has skyrocketed. Xiong’an created less than 10,000 urban jobs in 2019, against the official target of 40,000.

In a report released last year, Lin Shunli, a professor at Hebei University, said the state-led industry overhaul had dealt a “blow” to local employment, leading to a decline. household incomes while young people were unemployed “for long periods of time.” “.

“We will hardly benefit from the arrival of state-owned enterprises,” said Ye Shanshan, a trader. “They want people with college degrees that few local residents have.”

However, many state-backed companies and their employees remain reluctant to relocate to Xiong’an, which lacks Beijing’s level of public services.

“It will take many years for Xiong’an to catch up with Beijing when it comes to good schools and hospitals,” said an executive from a state-owned company who was ordered to relocate. “We are concerned about losing staff after moving.”

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