A Chinese development project championed by President Xi Jinping has been bogged down by disputes over costs and companies’ reluctance to move to the area, according to local officials and residents.
Xiong’an, situated in central Hebei province just 130km from the Chinese Communist party’s leadership compound in Beijing, was designated by Xi as a priority “new area” 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 slated to move to Xiong’an.
It is also intended to burnish Xi’s legacy, much as Shenzhen’s transformation in southern Guangdong province did for Deng Xiaoping’s.
Xiong’an, with a population of 1.3m, is already home to one of the world’s largest train stations by floor area, which began operating in December. But it is otherwise an economic backwater, lined with dirt roads, drab buildings and suspended construction sites.
On a recent weekday visit, only 30 of the more than 2,200 seats in the waiting hall of Xiong’an station, which cost more than Rmb30bn ($4.6bn) to build, were occupied.
“Xiong’an is a product of central planning that goes against market principles,” said Zhuang Bo, chief China economist at TS Lombard, a London-based consultancy. “It has had trouble taking off because the invisible hand [of the market] has a bigger impact than government intervention.”
Projects slated for completion by the end of 2023, when Xi is expected to begin an unprecedented third term as president, will cost Rmb146bn. But China Xiong’an Group, the primary investment vehicle for local infrastructure projects, took on only Rmb749m in long-term loans over the first nine months of last year.
People close to CXG, controlled by Hebei’s already highly indebted provincial government, said the firm was reluctant to increase borrowing. Hebei’s outstanding government debt, excluding borrowing by local government financing vehicles, was Rmb1.1tn by the end of last year, up from Rmb615bn in 2017.
The cash-strapped provincial government instead wants the central government to finance a big part of the construction costs at a time when Xi’s administration is trying to rein in stimulus measures unleashed last year at the peak of China’s Covid-19 outbreak.
“The result of the battle is slower-than-expected construction,” said one Xiong’an official, who asked not to be named. “There is no guarantee CXG can generate enough cash flow to pay off the debt. Hebei would have to step in if things go wrong.”
Some residents also complained that Xi’s project has led to steep 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 officials halted many real estate projects, constraining supply and trapping buyers who were paying steep rents while waiting for their homes to be completed.
Li Yang, a 35-year-old office worker, said his rent had more than tripled over the past four years while he waited for a flat he bought in 2016 to be completed.
“Thanks to government policy I spend the bulk of my income on rent and mortgage payments for an unfinished home 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 we can’t 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 the fiscal pressures on CXG and the local government, which depend on land sales for much of their revenues. Xiong’an government fiscal revenues were Rmb3.3bn last year, 25 per cent below target.
Another drag on the local economy, once known for its apparel and plastics industries, has been the forced closure or relocation of more than 4,000 factories. The polluting industries did not fit with Xi’s vision of a clean, green Xiong’an and had to make way for an anticipated inflow of state-owned enterprises and their employees from Beijing.
As a result of the factory closures, unemployment has soared. Xiong’an created fewer than 10,000 urban jobs in 2019, compared with the official target of 40,000.
In a report published last year, Lin Shunli, a professor at Hebei University, said the state-led industry overhaul had dealt “a significant blow” to local employment, causing household incomes to shrink as young people remained jobless “for extended periods of time”.
“We will benefit little from the arrival of SOEs,” said Ye Shanshan, a shopkeeper. “They want people with college degrees that few local residents have.”
Many state-backed companies and their employees, however, remain reluctant to move 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 one executive at an SOE that has been ordered to move. “We are worried about losing staff after relocating.”