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A New Model?

In the six months that have passed since the government announced the ambitious plan to establish the Xiongan New Area 100 kilometers south of Beijing, Rongcheng, one of three counties in Hebei Province neighboring Beijing that are included in the project, has already seen some major changes.

By NewsChina Updated Nov.1

In the six months that have passed since the government announced the ambitious plan to establish the Xiongan New Area 100 kilometers south of Beijing, Rongcheng, one of three counties in Hebei Province neighboring Beijing that are included in the project, has already seen some major changes.  

Aowei Road, a major thoroughfare at the center of Rongcheng where the county’s government is located, now has a new nickname among locals: “SOE Street.” Some of China’s biggest State-owned enterprises (SOEs), including the State Power Investment Corporation (SPIC), China Communications Construction Co. (CCCC), Power Construction Corporation of China (PCCC), and the State Development & Investment Corporation (SDIC) have opened offices on the street.  

According to the new Xiongan authorities, 65 centrally-administrated SOEs have opened offices in the Xiongan New Area, and 80 SOEs have started recruitment efforts, which are expected to create over 100,000 new jobs in the not too distant future.  

While the latest development may suggest that strong government intervention has kickstarted the project, various questions regarding the project’s future are far from clear.  

Size and Population 

Ever since the announcement of the project, which the Chinese leadership declared as having “strategic importance,” the initiative has led to heated debates among analysts over the project, ranging from the geographic location of Xiongan and the government’s top-down approach to pushing forward the project.  

One of the major questions regarding the new area is the relationship between Xiongan and Beijing, as the official description of the future of the Xiongan New Area is subject to different interpretation.  

For example, according to the official announcement, Xiongan will be a smart, clean and eco-friendly city, without the various “urban ills” of China’s major cities, which suggests a mid-size city. The projection appears to be in accordance with the official narrative released by the State news agency Xinhua, which states that Xiongan’s “long-term” population will be between 2 and 2.5 million.  

But in the meantime, the official announcement also states that Xiongan will take over Beijing’s “non-capital” functions, leading many analysts to liken the future relationship between Beijing and Xiongan to that between Washington and New York. Moreover, as Xiongan is described as a “1,000-year” project, and often compared with Shenzhen and Shanghai’s Pudong area, two of China’s biggest new areas and both cities have populations over 10 million, some expect Xiongan to become another major metropolis in the future.  

According to Huang Qunhui, Director of the Institute of Industrial Economics at the Chinese Academy of Social Sciences, who recently completed a research project into Xiongan’s population and housing policy following the announcement, it is too early to speculate on the scale of the new city in the long term. 

Based on existing data for population density in China’s major cities, Huang told NewsChina that the long-term population of Xiongan should be kept under five million. With a designated area of 2,000 square kilometers, a five-million population would lead to a population density of 2,500 people per square kilometer, a figure that is on a par with that of Beijing (1,324 per sq km), though considerably lower than that of Shenzhen (5,963) and Shanghai (3,816).  

 Huang said that with strong intervention from the government, it is realistic to expect that Xiongan’s population will reach two million within three to five years. “But to grow beyond that, it will depend on whether the new city is attractive to business and investment,” Huang added, “After all, the most fundamental problem for any city’s development is whether it can attract investment, and only when there are industries and jobs can there be new residents coming in.” 

Besides attracting new investment and new workers, the area also needs to address the employment requirements of its current million residents.  

Since the establishment of the Xiongan New Area in April, local authorities have shut down 9,000 factories, mostly small-scale, polluting manufacturing plants in the three counties that are included in the project. All pre-existing construction activities have also been put on hold, which has led to a surge in unemployment. According to Huang, while Xiongan should endeavor to attract green and innovative industries, it should prepare its local labor force for the service sector. To that end, the Xiongan authorities have launched various training programs across a variety of service industries.  

Housing Policy 

Other than the eventual size of Xiongan, the new area’s real estate and overall housing policy are another major focus of the project. The very day Xiongan’s establishment was announced in April, it triggered a real estate market frenzy that lasted until the next day, when local authorities responded by suspending all property sales in the affected region.  

The ban was so strictly enforced that not a single real estate property transaction has been approved in the past six months, while China’s leadership has vowed that the new city will adopt a new land and real estate policy and explore alternative development and urbanization models.  

In the past few decades, a major feature and problem of China’s urbanization is the so-called “land financing,” where local governments have come to depend on proceeds from selling to developers land which they appropriate from farmers. As local governments have a major stake in the housing market, the practice of land financing has often resulted in forceful evictions, and arbitrary control of land supply is widely considered a fundamental reason for China’s runaway house prices and various other social problems, such as income disparity between urban and rural residents.  

On September 8, in an interview with China’s State-owned China Central Television, Chen Gang, Party Committee secretary of Xiongan District and deputy governor of Hebei Province, gave reassurance that Xiongan will “definitely not engage in land financing.” 

The next day, September 9, Xinhua reported that Xiongan had started land acquisitions. According to the report, about 66 hectares (1,000 mu) of land will be acquired from 240 farmer households to build a temporary administrative center, which will include government organs, enterprise offices and facilities for conferences and exhibitions.  

In return, the farmers would receive 1,500 yuan (US$230) per mu annually or 6,250 yuan (US$950) per household per year, as land compensation. The report also suggests that the compensation standard is made in reference to (and beyond) the value of crops that can be grown on the land.  

On September 20, the People’s Daily, the Party’s official newspaper, published an editorial regarding the new area’s approach to its land policy. “Under a new policy, the land will be jointly owned by the government and the farmers … who will become ‘shareholders’ of the city,” said the editorial, “The fruits of urbanization will eventually be shared between farmers, government and developers.” The editorial went on to assert that the new area will eventually establish a mechanism for all stakeholders to have a fair share in Xiongan’s development.  

Government vs Market 

Yet another area of controversy for Xiongan is the relationship between the government and housing market. According to a city planning official in Xiongan, who asked to be quoted anonymously given the uncertainty of the issue, Xiongan authorities have been working with the Ministry of Housing and Urban-Rural Development to draft a comprehensive policy package regarding the new area’s land and housing policy. “It will clarify the role of the government and the market,” said the official, who didn’t provide a timeframe for the release of the policy.  

What is certain about the new policy is that it will adopt a rental-sale integrated housing policy. In previous months, as the Chinese government has repeatedly stressed that “houses are for occupation, not for speculation,” it has launched various programs to encourage the rental market. Xiongan will also adopt the same doctrine. 

Since the establishment of Xiongan, many experts have argued that China could adopt the Singapore model, where the government directly manages much of the land and builds public and low-rent housing for those in need. According to the unnamed official, one such proposal has been under discussion within the authorities. Under the system, the government will accommodate those in need in rental houses managed by the government. After working in the city for a certain number of years and gaining enough credits, people will be allowed to purchase a house at a discounted price.  

But as the authorities are still contemplating their approach to the new area’s housing policy, the average rental price in the area has increased 3.84 times, thanks to a temporary freeze on construction.  

According to Huang, for the Xiongan project to be a success, it needs to go through several stages of development. “During the first stage, it needs strong government intervention to kickstart the project, and the government needs to take direct control of the resources to stabilize the expectations of the market,” said Huang, “After the government-led initial development, there needs to be a transitional period of three to five years to allow the market to play a stronger role, and eventually it will become a normal city that relies on itself for further development.”