China Has Whole Towns Focused

Entirely on Making Electric Cars

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ARTICLE
Pieces of an electric car hang from the ceiling of the
Chinese real-estate developerʼs showroom, evoking an edgy installation at a
modern art museum. In reality, theyʼre a symbol of the nationʼs industrial
ambitions.

Just down the neatly manicured road, about a dozen skyscrapers rise from
the fields as Shunde New Energy Vehicle Town takes shape inside the city
of Foshan, part of southern Chinaʼs manufacturing heartland. Local officials
boast that their planned hub for EV production and research could
eventually generate 100 billion yuan ($15 billion) in revenue for the
hometown economy.
Shunde is one of at least 20 electric-centric versions of Detroit under
construction as China goes all-in on a technology projected to sell in record
numbers this year. President Xi Jinping wants the nationʼs 500 electric car
makers to be magnets for ancillary industries as he pushes to build a
manufacturing superpower by 2025. That blueprint -- meant to make China
more self-sufficient and diversify an investment landscape dominated by
volatile property and equity markets -- has become central to the U.S.-
China trade war.

Municipalities needing ways to recalibrate their economies want a piece of

that plan. Theyʼre offering cheap land, tax breaks and housing subsidies to
carmakers, parts suppliers and engineering labs in hopes of attracting
thousands of high-technology jobs in the burgeoning EV sector.

“The new-energy vehicle industry is a bet local governments must take,ʼʼ

said He Xiaopeng, chairman of Xpeng Motors Technology Ltd., an EV
startup backed by e-commerce giant Alibaba Group Holding Ltd. and
Taiwanʼs Foxconn Technology Group. “A successful EV maker could bring at
least 200 companies in the industry chain into a province.ʼʼ

The amount of investment committed to developing these EV towns is a

staggering 209 billion yuan -- equal to about $30 billion -- so far, according
to Bloomberg calculations based on public announcements. The
commitments range from fixed-asset investments to development costs by
carmakers, private capital and local government-backed entities.

The other hubs include Geely Automobile Holdings Ltd.ʼs plan for a research
and production base in Yiwu, LeEco Vehicle Ecological Town in Huzhou and
Self-Driving Auto Town in Xiamen.
Shunde New Energy Vehicle Town.

Photographer: Zoey Zhang/Bloomberg

The towns are typical of Chinaʼs command-led approach to its economy.

Enthusiasm at the top levels of government for a particular industry trickles
down to the hinterlands, which often respond with experiments recalling the
movie “Field of Dreams”: build it and they will come. Localities erect
industrial parks, apartment buildings and schools, lay out their incentives
and then hope businesses will take up their offers.

Thatʼs happening about an hour outside of Beijing, where the government is

constructing a Fund Town thatʼs meant to be a hub for the almost $2 trillion
private funds market. More than a dozen towns designated as financial
zones are scattered across the country.

Between 2009 and 2017, China spent about $36.5 billion subsidizing EV
sales, according to the Center for Strategic and International Studies in
Washington. China now accounts for more than half of all passenger EV
sales worldwide.

Chinaʼs rapid urbanization vacuumed up available land tracts, eventually

pushing prices higher and triggering tougher zoning laws. By committing to
EVs, local officials may find it easier to get central government approval to
redevelop scarce farmland and offer it at below-market rates to lure
commercial tenants. Thatʼs attracting some of the nationʼs biggest
developers, including Country Garden Holdings Co. and China Evergrande
Group.

Shunde government officials didnʼt return requests for comment. Foshan

mayor Zhu Wei said last year the city would offer favorable policies and
services to the NEV sector because itʼs a strategic emerging industry, the
Foshan Daily newspaper reported.

Shunde NEV Town is being constructed by Country Garden, Chinaʼs largest

developer. To win the plots, the company promises to bring EV-related
businesses and to meet tax revenue targets.

“The industry chain is far more comprehensive than car manufacturing,ʼʼ

said Liu Wei, whoʼs overseeing the project for Country Garden. “Weʼre well
aware the fever will fade, but some emerging firms will grow, and thatʼs who
we want to house.”

Prices in what are officially referred to as “characteristic small townsʼʼ are

an average of 49% cheaper than in adjacent plots, according to a China
Real Estate Information Corp. study last year.

Government's Bait

Authorities use cheaper land to lure developers help build a advanced tech town

Source: China Real Estate Information Corp.

That helped Country Garden pare office rents by as much as 25% from
market rates. And those businesses need skilled workers, so the
government offers subsidies of as much as 6 million yuan to help them buy
homes.

“The towns have at least one key resource that EV makers and suppliers are
eager to own: the land,” said Cui Dongshu, secretary general of the China
Passenger Car Association. “That will naturally attract them to move into
the towns.”

Governments around the world are supporting EVs, Zeng said. The U.S.
subsidized purchases of EVs and the state of Nevada approved a $1.3
billion incentive package for Tesla Inc. to build its battery gigafactory there.

So far, Country Garden has attracted startup Youxia Motors, autonomous

sightseeing carmaker Beijing Zoominbot Automotive Technology Co. and 57
other tenants, including research houses and venture-capital firms. More
than half of its available office space is occupied, Liu said.
Youxia, which has raised at least $1.3 billion and is expected to launch its
first model this year, didnʼt return requests for comment.

The town is planned as a two-square-kilometer area. Sketches show

schools, hospitals, a subway line to the airport and a version of New Yorkʼs
The High Line.

Yet the EV towns are developing just as Chinaʼs overall auto sales crater.
And while sales of passenger EVs are projected by BloombergNEF to reach
1.6 million units this year, thatʼs likely not enough to keep 500 companiesʼ
assembly lines humming.

The $18 Billion Electric-Car Bubble at Risk of Bursting in China

EVs still only account for less than 5% of total car sales in China, and the
government is cutting subsidies to force makers to thrive on innovation
instead of handouts.

Those factors have some analysts seeing flashing red lights ahead.

“Most of those EV towns will fail,ʼʼ said John Zeng, managing director of
LMC Automotive Shanghai. “This wave of electric-vehicle building will come
to a life-or-death moment. When EV carmakers are being squeezed, the ‘EV
Townʼ bubble will burst.ʼʼ
Shunde New Energy Vehicle Town.

Photographer: Emma Dong/Bloomberg

A visit in March to Shunde found its voltage a bit low. No one in Country
Gardenʼs showroom could name the suspended carʼs make or model. And
there were few gearheads around, with most offices seemingly empty, on a
weekday.

In January 2018, Country Garden announced its first anchor tenant -- EV

battery maker Shaanxi J&R Optimum Energy Co. But the company
struggled to pay its debts and stopped cooperating with Country Garden,
forcing the developer to find a smaller substitute.

Still, Liu is optimistic the sleepy district will one day morph into an electric
Detroit.

“I admit that the EV sector is still working its own way,ʼʼ Liu said. “But we
have been well aware of sector challenge since planning it two years ago,
and weʼre confident that we can adapt to the change.”

— With assistance by Emma Dong, and Yan Zhang

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