“Invisible Hand” pulls the handbrake on Xi’s pet project

A Chinese development project driven by President Xi Jinping has been marred by disputes over the costs and reluctance of companies to move to the area, according to local officials and residents.

Xiong’an, located in the central province of Hebei, just 130 kilometers from the Chinese Communist Party leadership venue in Beijing, was designated by Xi as a priority “new zone” in 2017.

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

It is also intended Xi’s bewitching legacy, as well as the transformation of Shenzhen in the south of Guangdong Province to that of Deng Xiaoping.

Xiong’an, with a population of 1.3 million, is already home to one of the largest in the world train stations by surface, which began operation in December. But on the other hand, it is an economical remedy, full of dirt roads, shady buildings and suspended works.

In a recent midweek visit, only 30 of the more than 2,200 seats in the Xiong’an station waiting room were filled, costing more than $ 30 billion ($ 4.6 billion). dollars).

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

The projects are expected to be completed by the end of 2023, when Xi is expected to start one third term unprecedented as president, it will cost 144 billion euros. But China Xiong’an Group, the main investment vehicle for local infrastructure projects, only acquired Rmb749m in long-term loans during the first nine months of last year.

People close to CXG, controlled by the heavily indebted Hebei provincial government, said the company is reluctant to increase lending. Hebei outstanding public debt, excluding debt for local government funding vehicles, was Rmb1.1tn at the end of last year, compared to Rmb615bn in 2017.

The provincial government, which has no cash, wants the central government to fund a large portion of construction costs at a time when the Xi administration is trying to curb stimulus measures was triggered last year at the height of the Chinese Covid-19 outbreak.

“The result of the battle is a slower-than-expected construction,” said a Xiong’an official, who asked not to be named. “There is no guarantee that CXG will be able to generate enough cash flow to pay off the debt. Hebei should intervene if things go wrong.

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

In response, local officials stopped many real estate projects, limiting supply and trapping buyers who paid heavy rents while waiting for their homes to be completed.

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

“Thanks to government policy I spend most of my income on rent and mortgage payments for an unfinished house with no end date,” he said.

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

The construction ban has also increased tax pressures on CXG and local government, which depend on the sale of land for most of their income. The Xiong’an government’s tax revenue was 3 billion euros last year, 25% below target.

Another problem for the local economy, known for its garment and plastics industries, has been the forced closure or relocation of more than 4,000 factories. Polluting industries did not fit Xi’s vision of a clean, green Xiong’an and had to give way to an early entry of state-owned enterprises and their Beijing employees.

As a result of factory closures, unemployment has skyrocketed. Xiong’an created less than 10,000 urban jobs in 2019, compared to the official target of 40,000.

In a report released last year, Lin Shunli, a professor at Hebei University, said the state-run industry review had dealt “a major blow” to local employment, prompting that household incomes were reduced, as young people remained unemployed “for extended periods of time”.

“We will benefit little from the arrival of public enterprises,” said Ye Shanshan, a shopkeeper. “They want people with college degrees who have few local residents.”

However, many state-backed companies and their employees remain reluctant to move to Xiong’an, which does not have the level of public services in Beijing.

“It will take many years for Xiong’an to catch up with Beijing when it comes to good schools and hospitals,” said an executive of an SOE that has been ordered to relocate. “We are worried about losing staff after moving.”