Economy

Xiongan, Xi Jinping's Dream Megacity To Burnish His Legacy

Ground has been broken on the signature domestic project of the Chinese leader's next term. It is meant to be a massive model city of innovation, forever linked to Xi's Chinese Dream.

Building Xiongan, Jinping's model city
Frédéric Schaeffer

QIAOXI —Time in this village seems to be standing still. Since the Ming dynasty 500 years ago, the community has enjoyed peace and quiet, surrounded by the lakes and reeds of the Baiyangdian region, about 150 kilometers southwest of Beijing. To reach it, there is only one narrow road that winds between the wetland and fields of corn and wheat. The location is popular among the capital's residents, who come here on weekends to admire the lotus flowers and eat freshwater fish.

But last April 1, the village was brutally shaken awake from its slumber and flung right into the top national headlines. This is where President Xi Jinping decided to create a new city to rival Shanghai and Shenzhen: The so-called Xiongan New Area is expected to cover 2,000 square kilometers — 20 times the size of Paris and three times the size of New York.

"We first heard the news on television," remembers the owner of the village's mini-market. "Everybody was very excited. Some even threw firecrackers in the street to celebrate!"

A neighbor playing cards adds, "Since it was on April 1st, we thought it was an April Fools' joke."

There had been indications that something big was about to happen. Over the preceding months, orders had been given to suspend all construction in the area's 60-odd villages. A checkpoint was installed at the entrance of each village to make sure no building materials could enter, and slogans exalting the glory of the future Xiongan were painted in huge letters on the walls of houses: "Everything is for the new area, everything is for the people."

The Xiongan project, vigorously covered by the official media, has several goals: First, to unclog Beijing, a city of 23 million, faced with chronic pollution and not enough resources. "Beijing grew by absorbing suburbs and already has six ring roads," says Alain Bertaud, an urbanist who spent a long time working on Chinese cities and is now a senior research scholar at the New York University's Marron Institute. "This model radiating from the center is no longer tenable."

All "non-capital" functions will be transferred from Beijing to Xiongan.

The Chinese authorities have therefore decided that all "non-capital" functions will be transferred from Beijing to Xiongan: State-owned companies, cultural institutions, universities and other public services are expected to move south.

But the goal pursued by Xi is also to build a model city, "open and innovative," following the examples of Shenzhen, which was a fisherman's village just 40 years ago, and of Pudong, near Shanghai, where skyscrapers have replaced the rice growers' cabins and swamps of 25 years ago. According to the propaganda, the emphasis will be put on "ecological protection" and on "improving people's well-being," as part of a lab city for a "new urbanization of China." The Chinese president, who described the project as "crucial for the next millennium," promised "blue skies, fresh air and clean water," according to the Chinese media.

Faced with these great promises and media hype, hordes of people flocked from Beijing and Tianjin only hours after the new area was announced, in search for bargains. The price of plots immediately shot up, forcing local authorities to ban all transactions and close down all real-estate agencies.

After that first weekend of April, the regions' listed companies saw their stocks skyrocket. "People came with trunks full of cash to buy apartments," the owner of a small packaging company in the Xiongxian district remembers. "Many offered to buy my company because it's no longer possible to register a new company to do business here."

Since then, however, the euphoria has given way to caution. Some locals wonder whether they are not simply going to have their lands expropriated and worry about how little compensation they might get. One of the card players here in Qiaoxi lost his job when all construction work stopped. Another, who works in a small shoe factory, guesses it will close down soon.

What about us, who aren't educated, what are we going to do?

Textile, shoes, plastic, packaging, cabling, all these old, polluting industries dominate the region. "The new area will be a great opportunity for future generations, without a doubt, but what about us, who aren't educated, what are we going to do?" asks a man who sells watermelons.

The path is still long before this poor district of 100 square kilometers and a million inhabitants becomes a model city. Currently, it is worth just 3 billion euros ($3.5 billion), 1% of Beijing's GDP. But why build it here precisely?

"Just like a blank book, this area, with its low population density, low level of development and sufficient space to grow, checks all the boxes for starting such a demanding project," says Xu Kuangdi, the former mayor of Shanghai. Xu, considered to be the creator of Pudong's financial district, now heads an experts' committee for the development of a great region gathering Beijing, the port city of Tianjin and Xiongan.

Village in the wetlands where Xiongan is to be built — Photo: Mou Yu/Xinhua via ZUMA

Everything needs to be built from scratch. Steel, copper, aluminum, concrete — the demand could be huge. Economists are working on different scenarios to assess the financial benefits. Citi forecasts a global investment of $75 billion over the first five years, while Morgan Stanley's estimates are at $350 billion over 10 years, in the best case, for a city that would then have close to 7 million inhabitants.

But before any of this can happen, Xiongan needs to actually exist. This is not the first time that the authorities in Beijing want to make a city rise from the ground. China already has 19 "new areas," 13 of them launched since 2014. But few have really made a difference. Some of these projects even ended up as ghost cities.

"So far, the central government's initiatives to create new cities haven't been successful," warns Xu Chenggang, professor of Economics at the Cheung Kong Graduate School of Business in Hong Kong. "The government wants Xiongan to fall in line with Shenzhen and Pudong because these projects have been successful, but there are many more differences than similarities."

Many economists share the point of view that the comparison does not stand. First, because the times and goals are different. When Shenzhen was built, "the Chinese economy was booming and the idea was to let market forces attract foreign capital," says Chen Gong, founder of the Beijing-based think tank Anbound.

Shenzhen was conceived as a laboratory for China's policy of openness regarding foreign investments, and with ambitious economic and financial reforms aimed at attracting private companies. The whole project was led by local authorities.

The Xiongan project, meanwhile, is being promoted by the central government, which wants to impose the relocation of state-owned companies from Beijing and push northern China's growth through big infrastructure projects.

To create wealth, the city will need to do more than just relieve Beijing.

There are also geographical differences. Shenzhen is located on the coast and near Hong Kong, Pudong sits on the bank opposite Shanghai. The Xiongan New Area is more isolated, located in the heart of the Hebei province, an arid region where air pollution is among the highest in China. A local NGO made a splash when it published aerial photos showing dark swamps the size of 42 football fields, soiled by waste water, on the outskirts of the Xiongan area. The authorities retorted that the damage had been done years earlier but that the cleaning up would be long and expensive. Not very attractive.

"Many conditions are required for it to work," says Bertaud, the urbanist. "Building a city from scratch requires huge and immediate investments without return for many years. The biggest challenge will probably be that of transportation because they'll need to cover a vast territory where population density varies widely. For the project to create wealth, the city will need to do more than just relieve Beijing and also attract migrants from the countryside."

It is a Herculean task with enormous challenges. But China has proven in the past that it knows how to lead big infrastructure projects. Most importantly, Xiongan is not a city like the others: Xi is personally involved in the project; he visited the site and chose it himself, according to the propaganda.

Forty years after Deng Xiaoping and Shenzhen, 25 years after Jiang Zemin and Shanghai, China's uber-president wants his city.

Alain Bertaud was working for the World Bank when the Chinese authorities showed him a project to turn a fisherman's village beyond the Pearl River delta into a city of 2 million. He admits he laughed at the idea. Now, 12 million people live in Shenzhen, which has become China's technological showcase. The lesson Bertaud draws from this is that "as long as you don't have evidence to the contrary, you should take the Chinese seriously!"

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Economy

European Debt? The First Question For Merkel's Successor

Across southern Europe, all eyes are on the German elections, as they hope a change of government might bring about reforms to the EU Stability Pact.

Angela Merkel at a campaign event of CDU party, Stralsund, Sep 2021

Tobias Kaiser, Virginia Kirst, Martina Meister


-Analysis-

BERLIN — Finance Minister Olaf Scholz (SPD) is the front-runner, according to recent polls, to become Germany's next chancellor. Little wonder then that he's attracting attention not just within the country, but from neighbors across Europe who are watching and listening to his every word.

That was certainly the case this past weekend in Brdo, Slovenia, where the minister met with his European counterparts. And of particular interest for those in attendance is where Scholz stands on the issue of debt-rule reform for the eurozone, a subject that is expected to be hotly debated among EU members in the coming months.

France, which holds its own elections early next year, has already made its position clear. "When it comes to the Stability and Growth Pact, we need new rules," said Bruno Le Maire, France's minister of the economy and finance, at the meeting in Slovenia. "We need simpler rules that take the economic reality into account. That is what France will be arguing for in the coming weeks."

The economic reality for eurozone countries is an average national debt of 100% of GDP. Only Luxemburg is currently meeting the two central requirements of the Maastricht Treaty: That national debt must be less than 60% of GDP and the deficit should be no more than 3%. For the moment, these rules have been set aside due to the coronavirus crisis, but next year national leaders must decide how to go forward and whether the rules should be reinstated in 2023.

Europe's north-south divide lives on

The debate looks set to be intense. Fiscally conservative countries, above all Austria and the Netherlands, are against relaxing the rules as they recently made very clear in a joint position paper on the subject. In contrast, southern European countries that are dealing with high levels of national debt believe that now is the moment to relax the rules.

Those governments are calling for countries to be given more freedom over their levels of national debt so that the economy, which is recovering remarkably quickly thanks to coronavirus spending and the European Central Bank's relaxation of its fiscal policy, can continue to grow.

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive.

The rules must be "adapted to fit the new reality," said Spanish Finance Minister Nadia Calviño in Brdo. She says the eurozone needs "new rules that work." Her Belgian counterpart agreed. The national debts in both countries currently stand at over 100% of GDP. The same is true of France, Italy, Portugal, Greece and Cyprus.

Officials there will be keeping a close eye on the German elections — and the subsequent coalition negotiations. Along with France, Germany still sets the tone in the EU, and Berlin's stance on the brewing conflict will depend largely on what the coalition government looks like.

A key question is which party Germany's next finance minister comes from. In their election campaign, the Greens have called for the debt rules to be revised so that in the future they support rather than hinder public investment. The FDP, however, wants to reinstate the Maastricht Treaty rules exactly as they were and ensure they are more strictly enforced than before.

This demand is unlikely to gain traction at the EU level because too many countries would still be breaking the rules for years to come. There is already a consensus that they should be reformed; what is still at stake is how far these reforms should go.

Mario Draghi on stage in Bologna

Prime Minister Mario Draghi at an event in Bologna, Italy — Photo: Brancolini/ROPI/ZUMA

Time for Draghi to step up?

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive. That having been said, starting in January, France will take over the presidency of the EU Council for a period that will coincide with its presidential election campaign. And it's likely that Macron's main rival, right-wing populist Marine Le Pen, will put the reforms front and center, especially since she has long argued against Germany and in favor of more freedom.

Rome is putting its faith in the negotiating skills of Prime Minister Mario Draghi, a former head of the European Central Bank. Draghi is a respected EU finance expert at the debating table and can be of great service to Italy precisely at a moment when Merkel's departure may see Germany represented by a politician with less experience at these kinds of drawn-out summits, where discussions go on long into the night.

The Stability and Growth pact may survive unscathed.

Regardless of how heated the debates turn out to be, the Stability and Growth Pact may well survive the conflict unscathed, as its symbolic value may make revising the agreement itself practically impossible. Instead, the aim will be to rewrite the rules that govern how the Pact should be interpreted: regulations, in other words, about how the deficit and national debt should be calculated.

One possible change would be to allow future borrowing for environmental investments to be discounted. France is not alone in calling for that. European Commissioner for Economy Paolo Gentiloni has also added his voice.

The European Commission is assuming that the debate may drag on for some time. The rules — set aside during the pandemic — are supposed to come into force again at the start of 2023.

The Commission is already preparing for the possibility that they could be reactivated without any reforms. They are investigating how the flexibility that has already been built into the debt laws could be used to ensure that a large swathe of eurozone countries don't automatically find themselves contravening them, representatives explained.

The Commission will present its recommendations for reforms, which will serve as a basis for the countries' negotiations, in December. By that point, the results of the German elections will be known, as well as possibly the coalition negotiations. And we might have a clearer idea of how intense the fight over Europe's debt rules could become — and whether the hopes of the southern countries could become reality.

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