Mizuho China Economics Weekly: A development plan for the Beijing-Tianjin-Hebei area

In Club News by Stephen Perry

Dear Friends

About 8 years ago, friends in China told me about a plan to create 15 regions in China which would be the main arms of a new state structure for China.
At that time three regions were being unfolded. Pearl River, Yangtze Delta and the Bohai Bay. The latter has now become the area described below.
This area has gone much deeper into integration as a region and the estimated amount of investment in the region is very substantial.
It is a lesson for the world in building regions and finding the balances within the region, and between national and regional powers and initiatives.
I would take a quick look at the attached as it is an interesting guide to our own chancellors ides about our Northern region , which shares that approach of building centres and regions to manage the populations and drivers that abound, but need local cohesion and leadership.
I would suspect that China will have 15 regions by 2021 or 2025, 6 on the coast, and 9 inland and to the West.
Each will have its financial capital, political, capital, and commercial capital. A new concept of separation of powers that reflects the intent of President Xi .
There is much in this to enable us to understand China 2049, and much of interest to us.
I suspect this region has been chosen as it involves Beijing so the political leadership will be alongside this. It is also a fairly compact region with all the characteristics that make up the nation.



On 30 April, the Political Bureau of the Communist Party approved a plan for the coordinated development of the Beijing-Tianjin-Hebei area. Some media reports have suggested that investment under this plan could reach CNY46t in six years. Although the actual scale of the investment is difficult to estimate, we believe the plan will include large-scale infrastructure investment. As we had anticipated, the government cannot allow the economy to slow further and will do what it can to increase fiscal expenditures in order to stimulate the economy. (See China Economic Weekly: Minister of Finance’s view on the Chinese economy, 30 April).

We believe the plan will:

1) will increase infrastructure investment dramatically;

2) improve the mobility of labour and capital in this region;

3) optimize the layout of SOEs and public institutions, such as schools and hospitals supported by the government; 

4) more effectively control air pollution.

Our concerns about the coordinated development plan are:

1) the difficulty in overcoming objections from concerned parties with vested interests;

2) focussing too much on where factories/businesses will be located may distort the market mechanism;

3) the plan’s success also relies upon the implementation of other reforms.

The PBoC announced a 25bp cut to the deposit and lending rate, effective 11 May. Meanwhile, the ceiling for the deposit rate was raised to 1.5x the benchmark, moving another step closer to full interest-rate liberalisation. This rate cut is a response to the subdued economic conditions seen in April, particularly subdued inflation and weak exports. As the PBoC seeks to keep the renminbi stable while exports are weak, likely to avoid further capital outflows, its strategy will likely focus on credit policy – such as a lower RRR and interest rate – as part of the government’s massive stimulus in 2015, rather than depreciation (see  Rate cut cycle accelerated by subdued inflation, weak exports 11 May).