China’s government is planning to shift parts of its vast bureaucracy to a city 150km from Beijing, causing shares in companies linked to the struggling metropolis to surge in anticipation

March 19, 2014 6:09 pm
China to shift Beijing bureaucrats to Baoding
By Jamil Anderlini in Beijing
China’s government is planning to shift parts of its vast bureaucracy to a city 150km from Beijing, causing shares in companies linked to the struggling metropolis to surge in anticipation.

Within an hour of the announcement of the plan to move state bureaus and government institutes to Baoding, a dozen Shanghai and Shenzhen-listed stocks surged and reached the daily trading limit of 10 per cent thanks to their connection to the city.
Baoding is better known in China as the home of the donkey burger. But its economy has suffered from its links to the struggling solar sector and a year-long anti-corruption campaign that has reduced the economic benefits of hosting the People’s Liberation Army’s 38th Mechanised Group, which is responsible for defending the Chinese capital.
The move shows how Beijing is trying to manage a migration to its cities. China announced this week that it intends to move 100m more people from the countryside into cities over the next seven years, a plan that involves strictly controlling the growth of cities of over 5m people while encouraging the development of smaller cities and county seats.
From the central government’s perspective, transplanting bureaucrats to Baoding would address two problems at once.
Not only would it help the Baoding economy but it would also the reduce pressure on the capital, which has seen its population grow by an average of 430,000 people annually for the past 12 years.
Beijing is now home to 21m people and its lack of water, extreme levels of air pollution and gridlocked traffic recently prompted a government think-tank to describe it as “unfit for human habitation”.
“The strain on these big cities’ resources and environment is too great, and it must be curbed,” vice minister of public security Huang Ming told reporters on Wednesday. He said crowded cities would be encouraged to move labour-intensive industries elsewhere.
Designating lowly Baoding to receive overflow from Beijing could also be compensation for Beijing’s demands that surrounding Hebei province reduce the polluting heavy industries that are its main source of employment and taxes.
But the rapid reaction in the stock markets on Wednesday also illustrated how the guiding hand of the government is very much alive in China and how eager investors are to take advantage.
The suggestion that thousands of influential Beijing officials with the power to approve licences and provide business favours was enough to pump up shares in 14 companies such as Luckyfilm, Swan Fiber and Juli Sling, which have operations in Baoding.
Even before the news was released, the Chinese-listed shares in these and several other Baoding-based companies had jumped as much as 35 per cent in the past week. By contrast, shares in New-York-listed Yingli Green Energy, a solar power company also based in Baoding, have fallen 20 per cent.
Officials have made vague statements recently about the city’s ambition to take industries away from overcrowded Beijing. But another possibility is that people aware of the latest plan have been trading on their knowledge.
Insider trading is rife in China, where government control of large parts of the economy allows officials and their friends and relatives to exploit public announcements of market-moving policies.
“I’m often surprised how blatant insider trading is and how few cases are punished in China,” said Fraser Howie, co-author of Red Capitalism and senior director of Newedge Singapore. “Most investors just assume it is how the market operates and feel that people with inside knowledge are entitled to trade on it.”