Economic Watch: China's stocks rally on new economic area

China's stocks rose substantially on Wednesday, partly driven by shares related to Xiongan New Area, a new economic zone to be built near Beijing.

The benchmark Shanghai Composite Index went up 1.48 percent to 3,270.31 points, the biggest daily increase in six months and reversing the bearish performance of the last week.

The smaller Shenzhen Component Index closed 1.9 percent higher at 10,627.13 points. The ChiNext Index, China's NASDAQ-style board of growth enterprises, rallied 1.88 percent to close at 1,943.16 points.

Combined turnover on the two bourses came in at 576.27 billion yuan (83.63 billion U.S. dollars), up from 463.6 billion yuan the previous trading day.

The strong indices came after central authorities announced the establishment of the new area on Saturday, which is a "major historic and strategic choice" that will be "crucial for the millennium to come," according to an official circular.

Of more than 3,000 listed companies, around 85 percent gained, with shares related to the new national strategy leading the rises, mainly in sectors such as property, cement, steel and construction.

Shares of more than 20 firms with business focused on the Beijing-Tianjin-Hebei region surged by around the 10-percent daily limit immediately after opening, and maintained the status throughout the day.

China Fortune Land Development, a property developer that had reportedly signed development agreements in the area, jumped 10.01 percent to 29.99 yuan per share.

Tangshan Jidong Cement, a major cement producer in Hebei, and BBMG Corp., a Beijing-based conglomerate in property development, construction and furniture, also saw rapid share price increases.

Xiongan, some 100 kilometers southwest of downtown Beijing and now only covering three less-developed counties, is expected to create fresh business opportunities and help the capital city share its prosperity with surrounding areas.

Analysts believe the establishment of the new economic area will draw infrastructure investment and provide impetus to broader economic growth.

"Xiongan is an opportunity for regional fixed asset investment (FAI) and will have profound influence on both primary and secondary markets," said Guan Qingyou, vice president of Minsheng Securities.

UBS Securities analyst Gao Ting predicts FAI in the area will reach 4 trillion yuan in the next 20 years, with new room for the development of the cement, steel, rail transit and transport sectors.

After non-capital functions including technology, education and manufacturing are transferred to Xiongan, the area will become a market-driven, innovative and green city that can spur regional growth and help Beijing and surrounding regions develop into the third-largest city cluster in China, Gao said.

State Development and Investment Corp. (SDIC), China's largest state-owned investment holding company by fund volume, has already expressed its interest in the new area.

Addressing an internal meeting on Tuesday, SDIC chairman Wang Huisheng said the company will "put its ability to good use" and "strive to be a vanguard and pioneer" in Xiongan's development.

SDIC will exploit its advantages in fundraising to attract private capital and innovate the financing channels for high-tech emerging sectors, including underground pipelines, the health industry and smart cities, according to Wang.

But concerns are also on the rise as Xiongan and nearby areas have already been crowded with speculative home buyers from other parts of the country who are betting on surges in asset prices.

Guan suggested the government pay more attention to risks of overheated investment and rising debts.

Local officials have swiftly rolled out measures to curb emerging property speculation, temporarily shutting down real estate agents and freezing home purchases. Endi