Concrete Analysis

Capital economic region finally starts making progress

Capital Economic Region, which will impact 8.2pc of the mainland population, finally begins to move forward at a faster clip

PUBLISHED : Tuesday, 23 September, 2014, 10:56am
UPDATED : Wednesday, 24 September, 2014, 12:47am

The concept of a capital economic region, with Beijing and Tianjin at its core surrounded by 11 cities in Hebei province in a massive hub and spoke formation, was first announced in 2004.

However, from the outset, the allocation of capital and intellectual resources has been heavily skewed in favour of the two super-core cities. This imbalance has led to their much faster growth, but also much more severe problems of urban governance, precisely the matters that the master plan for the region is intended to rectify.

The implementation of the plan has moved forward rather slowly and has been characterised by extensive periods of internal study, review and discussion. Presumably, there has also been a lot of behind-the-scenes wrangling involving the main stakeholders.

While Beijing has made some improvements in traffic management in recent years, the fundamental issues that threaten to render the city dysfunctional have not been addressed.

Hence, it was towards the end of the first winter after he assumed the presidency that Xi Jinping put his foot down. In a work meeting in February, he vented his frustration at the growing human, industrial and environmental pressures that are being brought to bear on the national capital.

Xi stated the city must relocate some of its non-core functions and stop expanding

Xi emphatically stated that the city must relocate some of its non-core functions outwards to surrounding cities in Hebei and stop “expanding like a pancake”. He pointed out the need to adopt a “top-down design approach” in finalising the master plan for establishing the region and insisted that its three main stakeholders must bury their differences and get over the mentality of “everyone just minding their own garden patch”.

Things have since clearly begun to move forward at a faster clip. First, in July the Beijing municipal government issued two guidelines, for the first time listing which urban industries and public entities are banned from being established or further expanding in the city and which industries have been prioritised for removal. The issuance of these guidelines is clearly intended to strengthen the city’s urban governance by relieving the pressures arising from excessive concentration of industrial and business activity.

The real winners will be those cities in the region that see their industrial structure substantially upgraded

That month, Beijing and Hebei province entered into seven strategic co-operation memoranda signalling the start of broader co-operative planning with respect to Beijing’s removal of traditional manufacturing enterprises and the creation of branches of hi-tech enterprises and public service organisations in Hebei cities.

July also witnessed the submission of three major planning initiatives under the broader plan for the region to the State Council for review and approval. The momentum indicated by this move was further underscored by an announcement in early August that construction of a second Beijing-Tianjin high-speed-rail link would shortly be launched.

The intense activity in July and August provided evidence that the resolve displayed at the February work meeting is having an effect. Faster implementation of the master plan has clearly been assigned a higher priority within the central government.

While the recent flurry of news concerning acceleration of establishment of the plan may have excited a wave of speculative acquisition in places like Langfang and Baoding in 2014, the impact will be felt over a much broader area.

In addition, despite the aggressive land banking moves by a number of local developers with close ties to the region, the impact of the progressive implementation of the master plan will not be instantaneous. Rather, it will have positive but differing impact on individual markets over the medium to longer term.

Along with the initial release of the plan to establish a more economically integrated capital economic region more than a decade ago, a number of forward-looking Chinese developers began land banking and initiating development projects as early as 2002 in a number of localities that would benefit from the substantial upgrading that would result from the plan’s implementation.

Developers such as Greenland, Guangzhou R&F Properties, Beijing Vantone Real Estate, Hongkun Real Estate Group and China Fortune Land Development made early moves in Beijing’s satellite cities. However, apart from these early entrants, a number of national-level developers, including China Resources Land and China Vanke, have recently moved to take stakes in large projects within the economic region as well.

While the developers that moved in early will reap substantial profits, the real winners will be those cities in the region that see their industrial structure substantially upgraded.

Cities in Hebei that formerly served as Beijing’s industrial hinterland are now being repositioned to capture the capital’s run-off industries. First will come its non-core industries and then some of its public service institutions. Given the potentially large amount of industry that must be wholly or partially relocated over the medium term, the plan to fast-track the economic region’s establishment ranks as one of the most ambitious economic rebalancing programmes China has undertaken. Indeed, it will affect about 8.2 per cent of the country’s population.

Andrew Ness is head of research for North Asia at DTZ