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China economy

Can China’s Communist Party build an innovation capital by decree?

President Xi Jinping envisions Xiongan – a hi-tech hub three times the size of New York City – as the next chapter in the development of modern China

PUBLISHED : Wednesday, 03 January, 2018, 12:59pm
UPDATED : Wednesday, 03 January, 2018, 11:02pm

Farmers in Rongcheng county often stop to stare at the cement trucks running through their cornfields outside this dusty, frigid town south of Beijing. They are watching the destruction of their livelihoods for the promise of a more prosperous future.

Chinese President Xi Jinping stood in nearby fields in April to herald a project “crucial for the next millennium”. Officials described a massive hi-tech hub three times the size of New York City that would resuscitate poor areas and transform how China builds urban centres.

They called it Xiongan, “magnificent peace”.

The country’s sprawling propaganda apparatus compared it in significance to Shenzhen, the wealthy southern metropolis where China first loosened suffocating Mao-era controls and dealt itself in as an aggressive new player in the global economy.

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Xi, the most authoritarian leader since Mao Zedong, envisions Xiongan as the next chapter of the four-decade boom that helped define modern China. Only this time, he is betting on the Communist Party, more than the markets, to steer it.

A richer, more assertive China faces an unprecedented political test. Shenzhen lit the fuse for decades of rapid economic growth without regard for the legacies of environmental degradation, shoddy construction or gaping inequality. Xiongan is intended to avoid those downsides through a more controlled approach – the world’s most modern, sustainable city created by fiat.

Deng Xiaoping, the former leader who blessed Shenzhen – which transformed from a cluster of fishing villages into an electronics manufacturing powerhouse – encouraged society to “let some people get rich first”. He catapulted China down the road to capitalism by easing the state’s grip on the economy. Xi, through Xiongan, is tightening it. He aims to build a city – a society – that prospers more thoughtfully because the party orchestrates that future.

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“Xi has a more convinced view of the necessity of a very large, direct state role in the economy than Deng ever did,” said Arthur Kroeber, a long-time China researcher and managing director of Beijing-based research firm Gavekal Dragonomics.

Shenzhen grew rich as a factory for the world. Xi wants Xiongan to grow rich as an innovation centre that leads the world.

The barren, frozen plains where orange-vested construction workers toil will house hand-picked companies that specialise in the sciences. Authorities last year began construction of a high-speed rail link from Beijing and are nearing completion of a US$12 billion airport that will serve the region.

“Xiongan is very much the Xi Jinping political economy playbook,” said Jude Blanchette, a researcher at the Conference Board in Beijing and author of a forthcoming book on Mao’s legacy. Xi was “not only providing leadership, but also the blueprint, the map and the instructional pamphlet for building a city. That’s really fundamentally different than Shenzhen”, he said.

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Five years ago, when Xi became leader, he made another high-profile visit to the booming, balmy city of Shenzhen and laid a wreath at the foot of Deng’s statue. Many thought he would continue on his predecessor’s path.

No other spot on Earth developed as quickly as Shenzhen, a cluster of fishing villages that expanded into the cornerstone of China’s export engine and, with Hong Kong and Guangdong, part of the world’s largest urban cluster. Today, Ferraris zoom past telecom giant Huawei and the electronics markets that ship goods worldwide. Shenzhen’s US$302 billion economy is roughly the size of the Philippines’.

Like Xiongan, Shenzhen arose as an experiment. Mao’s Cultural Revolution had shattered the economy, nationalising all production and abolishing most private property. For his free-market test, Deng chose a port next to flourishing Hong Kong, then ruled by the British, and embraced policies that lured foreign investment. Money flooded in.

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Many of Shenzhen’s advances started with ambitious entrepreneurs who bent the rules and improvised in ways unheard of in Beijing. The city drew aspiring Chinese like glue. Today, Shenzhen’s glass-towered tech district is filled with global workers.

“The role government played was to allow cooperation to develop, with less control and more freedom,” said Chen Gong, founder of Anbound, a public policy think tank in Beijing. “Xiongan is entirely the opposite.”

A bronze entry gate touts Rongcheng as the “famed northern clothing city”, a nod to its past as a garment manufacturer. Red murals painted on village walls nearby speak to its future: “Holding hands together to build Xiongan”.

Officials hope the farms and wetlands here in Hebei, a steelmaking province that surrounds Beijing, fill with companies and residents fleeing the congested capital. Universities, markets – whatever mars Beijing’s identity as a political centre – will relocate to a region two hours away.

Xi Jinping’s grand plan for Xiongan

Xiongan will act as the hub of an area that includes Beijing, Hebei and Tianjin, the port city to the east, in a plan to restructure a region the size of New England in the northeastern United States and with more than three times California’s population.

“It’s the only country in the world that’s doing it,” said Austin Williams, senior lecturer at London’s Kingston University and author of a book on China’s urbanism. “I wouldn’t be surprised if it doesn’t work half as successfully [as China expects]. But it will be more impressive than anything we’ve seen in the West for 50 years.”

Officials have yet to describe any role for international businesses, and have only just begun to approve domestic ones. The government plans to relocate premium schools and medical services to tempt companies in fields such as biotech and new energy.

Morgan Stanley predicts infrastructure and moving costs will total about US$290 billion over 15 years.

China’s three biggest tech companies have eagerly paid homage to Xi’s vision. Tencent, the Shenzhen-based social media colossus whose WeChat app boasts nearly 1 billion users, plans to set up a financial technology lab there. Alibaba, the country’s equivalent of Amazon, will establish artificial intelligence units, while search giant Baidu and the China Academy of Urban Planning & Design are partnering on a big data laboratory.

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“Future cities should be developed based on the quality of people’s life,” Alibaba founder Jack Ma said when announcing the company’s participation. “It’s a millennial plan to create a future city.”

When state media announced the plan for Xiongan on April 1, speculators scurried to the region. Shares of construction companies soared and the frenzy forced authorities to freeze property deals.

Villagers simply watched as the government seized their farmland. Private land ownership does not exist in China, where the party controls all.

“It sounds like a really good idea, but who knows,” said Yang Nongchi, 61, whose corn and wheat fields were taken to build Xiongan’s temporary headquarters.

The compensation is not enough for her family of six, she said. “Normally, the common people suffer most.”

Xiongan’s designers recognise the downsides of China’s boomtowns, which still reel from the side effects of rapid economic growth and poor planning.

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Even in Shenzhen, one of China’s most liveable and expensive cities, young people struggle to afford basic accommodation. Cramped urban villages reveal widening inequality. A 2015 landslide, in which a collapsing mountain of illegal landfill and construction debris killed more than 70 people, laid bare the consequences of under-regulated development.

Only Shenzhen’s position on the coast frees it from the sooty film of smog that hovers over whole swathes of the country.

Xiongan is about “more balance in society and more balance between economic and environmental issues”, said Guo Wanda, vice-president of China Development Institute, a Shenzhen think tank set up to promote economic reforms.

The new area will focus more on quality of life issues than Shenzhen did as a manufacturing centre that prioritised exports.

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“If a project like this can succeed, China is the place,” said Zhang Yue, who researches urban politics at the University of Illinois at Chicago. “The government is able to mobilise so many resources and political power can be centralised … But we need to be aware of possible problems like no consultation, a lack of policy, no local input.”

One resident, Zhang Shuanmei, said the rent for her Sichuan restaurant in Rongcheng would double next year.

“If other people make a life here it will be good because it will help the economy and improve the environment,” she said, amid the smell of pungent peppercorns.

“But at the moment, for local people, it’s not good.”