BOFIT Viikkokatsaus / BOFIT Weekly 2017/15

President Xi Jinping announced at the start of April the creation of Xiongan New Area, which lies about 130 kilometres south of Beijing. The government expects the Xiongan New Area to foster development in the Beijing and Tianjin municipalities and the adjoining Hebei province. News agency Xinhua reports that the area will have similar status to the Shenzhen special economic zone established in the 1980s and Shanghai's Pudong New Area set up in the 199os. Besides promoting development in the capital area, the Xiongan will be a test area of reforms and serve as a new model for urbanisation and urban infrastructure.

Even with the project's long timeframe, the fact that it has president Xi's blessing provides confidence to many that it will succeed. After the creation of the Xiongan New Area was announced, local apartment prices skyrocketed. The share prices of dozens of firms expected to benefit from the project also rose on the news. The speculative reactions highlight the current nature of China's markets.

As part of its economic experimentation, China has established several special economic zones and new areas. The Caixin news service reports that Xiongan is China's 19th new area. China has also created several free-trade zones (FTZs) since 2013. The announcement of seven new FTZs at the beginning of this month brings the FTZ total to 11. However, new economic areas do not have the same impact on growth and reforms as the Shenzhen and Pudong projects in 1980s and 1990s. Experiment zones gradually change the current economic system and help in designing specific reforms. Even so, they are no substitute for much needed market reforms at the national level.