China Plan to Create New Shenzhen Spurs Speculative Rampage

  • Government creates Xiongan economic zone in Hebei province
  • Cement and construction stocks soar, buyers flock to property

It didn’t take long for news that China would set up an economic zone near Beijing to touch off an investor frenzy.

Within 24 hours of Saturday’s announcement that the government would create the Xiongan area in Hebei province -- in the same spirit that Shenzhen and Shanghai’s Pudong was built -- hordes of prospective buyers had thronged to the region. Highways were clogged as they came to purchase real estate, with some camping outside property agent offices overnight, according to local media reports. On Sunday the government banned all property sales in the zone to stem speculation, according to the National Business Daily.

On Monday, shares of Chinese cement, building and port-related stocks surged in Hong Kong amid optimism the decision will spark a flurry of construction activity. The move by President Xi Jinping, which evokes memories of the rise of Shenzhen since it was declared a special economic zone more than three decades ago, is seen as a historic milestone to power China’s growth for a “millennium to come,” the official Xinhua News Agency reported. The new zone is expected to eventually cover about 2,000 square kilometers (772 square miles) and jump-start China’s economic growth.

“This would be one of the centrepieces of a high-level development plan for the Beijing-Tianjin-Hebei region,” said Bill Bowler, a sales trader at Forsyth Barr Asia Ltd. in Hong Kong. “I would liken it to the development of a brand new New York City, with Beijing as Washington. The regional plan has been termed a ‘1000-year project’; the first of its kind since Mao.”

The development of the region will create an urban district in Hebei that will help move some of the non-capital functions away from Beijing, Xinhua reported on Saturday. The new district would initially cover an area of about 100 square kilometers, and authorities want to turn the region into a new growth center as China’s economy slows, according to the news agency.

Shares of cement company BBMG Corp. surged as much as 46 percent in its biggest gain since July 2009. Tianjin Port Development Holdings Ltd rallied 16 percent and China National Building Material Co. advanced 7.4 percent. Mainland Chinese markets are closed for a public holiday and reopen on Wednesday.

“China’s new economic zone plan makes investors feel more optimistic about China’s economic outlook,” Castor Pang, head of research at Core Pacific-Yamaichi in Hong Kong, said by phone. “The investment plan could support demand for cement, steel and construction-related materials in the next ten years in China.”

Investor euphoria surrounding the plan may cause a headache for authorities, who have vowed to crack down on speculative buying frenzies spanning stocks to real estate. President Xi and his policymakers have pledged to curb excess leverage in the financial system and have committed to enforce prudent and neutral monetary policy to deflate bubbles.

Soaring home prices cities such as Shenzhen, Beijing and Shanghai have prompted authorities to impose restrictions to cool the market. China’s central bank last month asked banks in Beijing to scrutinize home loans to newly divorced couples and funding sources for borrowers, adding to other curbs to cool the market.

Heavy Smog

Beijing has been suffering from pollution and traffic congestion with heavy smog prompting more than 60 cities across China, including the nation’s capital, to issue health alerts this year. Beijing’s city government’s plans to spend 18.2 billion yuan ($2.6 billion) to tackle air pollution in 2017, Xinhua reported in January.

China is targeting growth of about 6.5 percent “or higher if possible” this year, after gross domestic product slowed for a sixth year in 2016. Economic and social stability are key priorities before President Xi and his cadres gather later for a reshuffling of top officials, which is planned for the fourth quarter.

“The collaborative development of the three regions is intended to solve problems like overpopulation and traffic congestion in Beijing,” Howard Lau, an analyst at Jefferies Group LLC in Hong Kong, wrote in a note. “The relocation and transformation of industries could boost infrastructure and property investment in the region.”

Tangshan Jidong Cement Co. sent out an internal notice to its customers to raise cement price by 50 yuan per ton starting from April 2, according to Duncan Chan, an analyst at China Securities International Finance Holding Co. in Hong Kong. BBMG last year signed a pact to buy a controlling stake in Jidong Cement.

“The price raising move should be triggered by China’s plan to build an economic zone,” Chan said. “We expect other cement makers to follow the move to hike cement prices thanks to the construction needs.”

— With assistance by Moxy Ying, and Hannah Dormido

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE