Reuters

It’s been a rough twelve months for China’s stock exchanges. The Shanghai Composite Index, which tracks the Shanghai Stock Exchange, is down 17% from a year earlier, while the Shenzhen exchange is down 28% and the benchmark index for Chinext — an exchange set up late 2010 for small, growth-stage firms — is down 35% since the end of January last year.

Lucky for them companies are still clambering to get listed.

On Wednesday, the China Securities Regulatory Commission published for the first time a full list of Chinese companies that have applied to launch an initial public offering in the country (here and here in Chinese). The list — seemingly an effort by the new head of the securities regulator, Guo Shuqing, to inject more transparency into the market – reveals more than 500 firms are queued up to IPO on a domestic exchange.

Why so many?

Unlike markets in developed economies, where companies are allowed to launch an IPO at a time of their own choosing as long as they fulfill the exchange’s listing criteria, companies in China can only list if the regulator gives them the all-clear. In turn, the regulator either pours or drip-feeds new issuers into the market in an effort to manage market sentiment. In late 2008 and early 2009 it even imposed what was effectively a nine-month moratorium on new IPOs so as not to draw funds away from existing stocks as the market slumped with the onset of the global financial crisis.

That’s made life difficult for many firms who need capital but have to contend with a long lag – years in some cases – between applying for an IPO and actually being allowed to sell shares. Of the 500 odd firms on the CSRC’s list, the regulator said 50 companies are undergoing preliminary reviews, one of the final hurdles before listing. The CSRC didn’t give any indication of whether this was more or less than the usual practice.

Notably, the list includes eight regional banks. After the Bank of Beijing and Bank of Nanjing were allowed to list in 2007, Beijing stopped the flow of small Chinese banks launching IPOs. However, after ramping up their lending in 2009 to help with the country’s economic stimulus efforts, many of China’s city-based commercial banks have been screaming out for capital.

There are 14 banks in total on the CSRC’s list. Instead of being allowed to list, they have come up against a banking regulator (which also has a say in whether banks can go public) that has demanded the banks up their game before giving its approval to sell shares to the public.

Now some banks appear to have reached one of the final hurdles. But unless Chinese investors start showing some enthusiasm for their stock markets, the banks might still have a while to wait.

– Dinny McMahon, with contributions from Amy Li

Routledge

If you want to understand China’s reform-era growing pains you can do a lot worse than dig into the coal industry. Coal powers China’s industry, pollutes its environment, and is the site of conflict for the state and private entrepreneurs – each eager to monopolize control of a precious resource.

Tim Wright of the University of Sheffield has made the Chinese coal industry the focus for research stretching over the last few decades. Much of that research appears in his new book “The Political Economy of the Chinese Coal Industry: Black Gold and Blood Stained Coal.”

China Real Time recent caught up with Mr. Wright to discuss the challenges facing China’s coal industry — from safety to corruption to power shortages — and how long the country can count on its stores of coal to fuel its fast-burning economy. Edited excerpts:

Why is coal mining so important in China?

Coal provides around 70% of China’s energy supplies. So it has been central to China’s rapid – and energy intensive – economic growth. Coal is also one of the major causes of pollution and environmental degradation in China, as well as a large contributor to the country’s increasing carbon emissions. Finally, the industry provides employment for well over five million workers.

Coal mining is an area where there’s been a struggle between the state and the private sector?

Since the middle of the last decade, many commentators inside and outside China have seen a trend towards “the advance of the state and the retreat of the people” (or the private sector). The attempts by central and provincial governments to control myriad small mines, especially in Shanxi, has been a major example of this and, from late 2008, the Shanxi government began a policy where the large mines owned by the province took over the small private mines. This was strongly resisted by the mine owners, many of whom were inter-provincial investors particularly from Wenzhou in Zhejiang.

The attempt to control the private sector is also about controlling the social and environmental costs of mining?

Yes, it is not simply a struggle for control. There are real safety and environmental issues involved. Small private mines certainly tend to be less safe than the large mines, and also lack the resources to tackle environmental pollution – for example by washing the coal. These factors form at least the pretext for the government’s policy.

Corruption seems to be a big part of the story?

Two factors – the high profits to be made from coal, and local governments’ control over most of the licenses necessary to mine it – make corruption both inevitable and widespread. The phenomenon is known as “official-coalmine collusion” and is often exposed in the aftermath of disasters in mines operating illegally under the protection of local governments or individual officials.

But the moralistic tone used by the Chinese press to address the issue doesn’t tell the whole story. First, corruption apart, the small mines play an important part in income and employment generation for many inland areas with few other opportunities; so there is resistance to their closure beyond that just from the owners. Second, the chronic underfunding of local government in China forces local authorities to look for other sources of revenue, so it is in their institutional – as well as personal – interest to support the local mines, even against the wishes of central government.

How have workers fared in the reform process?

Coal mine workers went through a difficult period in the 1990s. They had been the aristocrats of the working class under the planned economy but the low price of coal and the mines’ economic difficulties meant that their incomes rose less than those of other workers. The boom in coal prices and coal profits in the 2000s has, however, provided the resources to increase wages, and there has been a big improvement over the past few years, even if miners still grumble that they lag behind other workers, for example in the electric power industry.

Premier Wen Jiabao spent new year 2005 underground with some miners. Has the central government been able to get to grips with safety?

There has been a spectacular improvement in China’s coal safety record over the last decade – the number of deaths has fallen by about two-thirds during a period when output has more than doubled. Although one has to remain skeptical about the details of the official statistics, at least a major part of the decline in fatalities does reflect a real improvement. This improvement has been due to a number of factors: high profits creating the resources to invest in safety; the beginnings of labor shortages allowing workers to demand better conditions; the higher priority put on social and safety issues by the Wen Jiabao – Hu Jintao government; and collaboration with foreign safety experts.

China’s economy seems to suffer from regular power shortages, what’s the reason for that?

Partly it is just the phenomenal rate of growth of the Chinese economy (which has mostly been concentrated in high energy using sectors) putting pressure on energy supplies. But beyond that it reflects a struggle between the coal and electric power industries over the price of coal supplied to the power stations. The power stations, who have to accept electricity prices fixed by the state, have argued that they cannot afford the ever-increasing price of their main fuel, coal. The state has attempted to pressure the mines to supply coal at cheaper prices, but of course this has reduced the mines’ incentive to produce, resulting in occasional shortages and power cuts.

How much coal has China got left? Any chance of a switch toward significant imports?

China has large amounts of coal left – certainly well over 100 billion tons. But at its very high level of production – not far behind the rest of the world put together – there has already been talk of the resources running out, or at least becoming increasingly expensive to mine. Already imports have increased sharply – from only around 10 million tons a year in the early 2000s to well over 150 million tons by 2010. However, because of China’s massive use of coal, it is almost inconceivable that a major part of its demand could be fulfilled by imports – 150 million tons accounts only for 2 per cent of China’s coal consumption, but close to 20 per cent of global coal trade. For the same reason, China cannot fill the gap with oil imports. So if it is to reduce its reliance on domestically-produced coal, China will have to look for other sources of energy – optimistically renewables but perhaps more likely nuclear power.

– Tom Orlik

Agence France-Presse/Getty Images

In a file picture taken on September 12, 2011 a general view shows the main square in the city centre of Ordos, Inner Mongolia . The city which is commonly referred to as a “Ghost Town” due to it’s lack of people, is being built to house 1.5 million inhabitants and has been dubbed as the “Dubai of China” by locals. The construction of enormous skyscrapers has an “unhealthy” link with looming financial crises and investors should therefore keep a close eye on China and India, Barclays Capital said on January 11, 2012.

The construction of skyscrapers is one indication of a financial bubble, and feverish building activity in India and China suggest a bursting may be on the horizon.

That’s the finding of a recent report by Barclays Capital.

For more than a decade, Barclays’ property analyst Andrew Lawrence has been contending that a spurt in the construction of skyscrapers and other tall buildings in a country signals “an impending financial crisis.”

Mr. Lawrence illustrates his thesis by connecting some of the world’s most famous skyscrapers to economic booms and busts.

He says the construction of New York’s Chrysler Building in 1930 and the Empire State Building in 1931, then the tallest buildings in the world, coincided with the Great Depression. In the seventies, the completion of New York’s famous One and Two World Trade Centers and the Sears Towers in Chicago heralded the global economic crises of 1974. In 1997, Kuala Lumpur’s Petronas Towers took over as the world’s tallest building, but that was followed by an economic collapse across Asia.

More recently, Dubai claimed the world’s tallest building title with the completion of the Burj Khalifa in 2010. Mr. Lawrence notes that this coincided with the most recent global economic crisis.

The construction of skyscrapers and other tall buildings starts at a time of great euphoria when there’s a lot of easy money available, but they typically “finish into a recession,” Mr. Lawrence said in an interview.

See more on this story at India Real Time

Agence France-Presse/Getty Images

Shanghai’s people are letting off steam as their powerhouse economy loses momentum.

Delivering an annual work report to city officials Wednesday, Shanghai Mayor Han Zheng cited evidence of across-the-board economic weakening last year and said the government needs fresh approaches to resolving “social conflicts.” Forecasting 2012, he said Shanghai is looking at an “even more complicated external economic environment and ingrained problems in transformation.”

According to the 49-page text of the mayor’s presentation, Mr. Han didn’t dwell on the weakening, saying that the city “withstood the test of a complex and ever-changing environment in 2011.” Just the same, he said it is the government’s duty “to answer the call of our times” and become more “empathetic.”

China’s economic slowdown has put a crick in Shanghai’s traditional swagger. Dependent on investment, exports, manufacturing and real estate, the east coast city epitomizes China’s broader economic challenge to restructure and live with less robust growth. The city’s underbelly, not its sparkle, made international headlines last year: trucker strikes, railway snafus and home-owner protests defined Shanghai’s 2011.

Barbie even packed up and left the city, as Mattel Inc. closed its only store dedicated to the doll. So did Best Buy Co.

Shanghai isn’t dying. The economy grew at least 8% in 2011 and will do so again in 2012, the mayor said. But that’s down from 9.9% in 2010. For over 15 years, the city’s economy had topped 10% growth.

Other figures Mr. Han presented suggested slowing throughout the economy during 2011. Retail sales were up 12% (compared to 17.5% growth in 2010), despite nearly 14% growth in urban per capita income to 36,200 yuan ($5,730). With its 900-plus foreign regional headquarters and research labs, its foreign direct investment was $12.6 billion (down from $15 billion in 2010).

Mr. Han said merchandise trade was ahead 18% in 2011. For 2010, the local government said exports rose over 27% and imports by nearly 39%.

He pledged continued spending on subways, bridges and parks, but somewhat less largess.

The city will start construction of 170,800 subsidized housing units (versus 267,000 for 2011), he said while also pledging 40 new kindergartens and 5000 new beds for elder care.

Shanghai was the Expo city in 2010, drawing over 70 million visitors for the event, but its big international sporting event this year is the World Short Track Speed Skating Championships 2012.

Mr. Han’s sobering delivery may be deliberate: It dovetails with the message of his bosses in Beijing, who have de-emphasized economic growth and supported social programs. He said fixed asset investment was little changed as a contributor to the GDP last year while property was a bit of drag.

In his job since 2003, one of the longest tenures for a Shanghai mayor, the 57-year-old already survived a politicized purge in 2006 when leading members of the Shanghai leadership, including the Communist Party boss Chen Liangyu, were ousted on corruption charges. Mr. Han is young and powerful enough to be in the running for a high-level position during this year’s reshuffle.

Using words like “holistic” and “mediation,” Mr. Han said the government will win trust from its people and diffuse social tension with transparency – including its official account on the Twitter-like microblogging service Sina Weibo, which he mentioned twice.

“We are committed to building a service-oriented government that is always empathetic with its people, a responsible government that is efficient, diligent and innovative, a law-based government that is impartial, disciplined and well-organized, and a clean government that is honest, open and transparent,” Mr. Han said.

– James T. Areddy, follow him on Twitter @jamestareddy

The 59-year-old has been Chongqing mayor since January 2010, following around nine years as vice mayor of the sprawling municipality of 30 million people. Previously, he was deputy Communist Party Secretary of Shanghai, where he was an important force in the development of the city’s Pudong New District.

Mr. Huang was born in the eastern province of Zhejiang.

Over two hours on Nov. 25, 2011, the mayor spoke with Wall Street Journal reporter James T. Areddy in a boardroom adjacent to his office in the Chongqing municipal government’s leafy riverside compound. Wearing a black polo shirt, he discussed Chongqing’s goals for real-estate affordability, regulation and development, supporting his technocratic arguments with an array of figures and by making comparisons with the situation in the U.S. property market.

He concluded the interview by lighting a large cigar.

Here are translated excerpts:

WSJ: PLEASE EXPLAIN YOUR PHILOSOPHY IN TERMS OF GOVERNMENT REGULATION OF THE PROPERTY MARKET?

Mayor Huang: I think the pattern of property products should be based on two tracks, the first one is the commercial housing the second is public housing. No matter what measures and controls will be adopted in the commercial sector, six or seven years of family income will be enough to support a family to purchase a house.

(Even so) there are still a large number of low-income people who cannot afford housing. So I think it comes to the government to show its responsibility to provide them this housing. In any city or nation, I think the dual track system is very important: 60-70% commercial housing and 30-40%  public housing.

So this is our philosophy to provide housing to the general public through these two tracks.

For a reasonable pricing regime, it should take a family six or seven years of annual income to buy outright commercial housing. This is a directional pattern. Of course, there are some high income people who can afford to buy a villa. In general, I think it is rational and reasonable for a family to spend six or seven years of annual income to buy a house. This is also a target of the government adjustment and control measures in the commercial housing sector.

Property products also belong to the category of consumer goods. So it comes to a supply and demand driven relationship. If there is an oversupply I think the price will be dragged down, and vice versa. The government should shoulder its due responsibility strike a balance in this relationship between supply and demand.

The other nature of property products is that they are also capital goods, since the family would usually like to hold this asset for a very long term. It is a very important issue for us to consider whether to collect tax by treating the property as consumer goods or as family assets.

It is different from, for example, cosmetic products which are purely consumer goods and the tax should naturally be collected during the process of production and transaction. But when you collect tax from the transaction process this process will push up higher the price of the products.

We should have a clear view of the nature of the property products as a capital good. By collecting property tax, I think we will be able to dampen the speculation in the market. Today in China, the tax is only collected in the transaction. When it comes to the property market, this is something different from the United States. We know in the U.S., you have the property tax and for that reason we should really learn the experience from the United States.

Property products are also financial goods. Bank loans are heavily involved during the whole process starting with construction to purchasing. The market is very much affected by monetary policy. So I think in carrying out government macro control and adjustment we should rely on financial tools.

I think the most important tool for us to regulate and adjust the property market is the leverage ratio of the mortgage loan.

If the pressure is purely made through mortgage loans, which means zero down-payment, I think it will be the worst case scenario for the market and create excessive bubbles. I think is also one of the reasons triggering the sub-prime loan crisis in the United States.

And if the situation goes the other extreme, take this for example zero-mortgage and 100% down-payment, I think 90% of the potential buyers could not afford the purchasing homes, and this is only a market serving the rich people. This would be a disaster for the national property market. What I mean here is a proper balance to be found between these two extremes.

We have already adopted four specific measures to regulate and address the property market in Chongqing. First of all we look at property as consumer goods, so we struck a balance between the supply and demand. Each year the government investment in the property market will be no larger than 20% of government investment in fixed assets. Thirdly, we have already initiated some pilot projects here in Chongqing in collecting property tax. Fourthly, we also came up with a rational leverage ratio in terms of mortgage loans. The first time buyers have to pay 30% down payment, the second home needs you to pay 60% down payment and purchasing the third home you have to pay fully.

I think my model here covering these four aspects is really working very well here in Chongqing and I think it will also work very well in China at large, and even I think we can provide this model to the United States for its reference.

I think with these four measures effectively implemented we will accomplish that objective to enable the home buyers to buy a home with six or seven years of family income. If there is any one of these four measures that fails to be properly implemented I think there will be two kinds of scenarios: first of all excessive bubbles on the market and secondly sluggishness of the market.

In the past 10 years in the United States we saw that around the year 2000 the financial companies came up with the sub-prime loan products and it only took six or seven years to create excessive bubbles on the market, which led to the crisis in 2008. That crisis cut the value of the market by 30%. I think this is something triggered by the policy of zero down payment.

WSJ: IF THE PRICES IN CHONGQING GET TO 6-7 YEARS OF FAMILY INCOME, PRICES NEED TO FALL. AS YOU IMPLEMENT THIS POLICY, WHO DO YOU EXPECT TO BE HURT: DEVELOPERS, HOMEOWNERS, BANKS OR GOVERNMENT? AND DO YOU HAVE A GOAL TO CRASH THE PROPERTY MARKET?

MAYOR HUANG: I think I mentioned the four measures have already been effectively adopted and implemented here in Chongqing. This has already been something taking place on the market that they buy their home with six or seven years of income. This is not an objective that we are going to obtain. Actually this is the reality.

In September of this year, the average property price here in Chongqing was 6,300 yuan per square meter (about $985). I think if a three-person family, for them to buy a 60-square-meter condominium, according to this average price it will cost them 500,000 yuan. In the major urban area, the average annual income per person is 20,000 yuan so a three-person family earns about 70,000 yuan per year. If you look at Chongqing Municipality as a whole, because there are some rural areas, the average family income is 60,000 yuan.

So if you do some math here you will find it will cause them really seven years to buy a condo priced at 500,000 yuan. Of course in the years ahead there will be increases of GDP, increases of family income and the price of property will also go up. But I think balance will always be there.

In some other Chinese cities you will find it takes a family 20 years of income to buy a house. That is because they do not have those four measures effectively implemented.

We don’t hope to see the bubbles, nor do we hope to see the collapse of the market. This is in the interest of no one, not in the interest of the government, not developers, not the homeowners. So I think this is a very sacred responsibility of the government to accomplish that objective: six or seven years of family annual income to buy a house.

I think another objective of the government macro-control and management efforts is to strike a proper balance between the property market value with GDP. If the market value to GDP ratio is one to one I think our objective to buy a house with six or seven years of family income will be realized.

There are 300 million people in the United States and the average living area is 40 square meters, according to our statistics. You will find that if the average price is $2,600 per square meter and for a three-person family 120 square meters of living area it will cost a family $300,000 in total to buy that house. And if you look at the GDP of the United States in per capita terms, the per capita GDP is $50,000 each year. But 60% is the government revenues and corporate profits, so it means that the net cash income per head is $20,000. If you do some calculations for a three-person family the annual income is perhaps $50,000 or $60,000.

So if you check these figures you will see it takes these families six years to buy a house the total value of which is $300,000.

If we go back to the year 2007 we saw that year the GDP of the United States was roughly $13 trillion. But due to the later occurrence of sub-prime loan crisis, bubbles were created on the market. That same year the property market value was $17 trillion. So the property market value was 50% higher than the GDP size. In this case, you will see the creation of bubbles.

Now the prices have bottomed out and during the past years we saw the value of the property market went down another 30%. So based on statistics, the market value currently in the United States is $14 trillion and the GDP size is roughly around $14 trillion. I think the bubbles have been squeezed out. I think this balance should be properly maintained in the future.

Perhaps you will find that provincial mayors would like to provide their wisdom to the United States. I’m one of them.

WSJ: THERE IS NO PLACE IN THE UNITED STATES THAT LOOKS LIKE CHONGQING. I DON’T THINK MOST AMERICANS COULD IMAGINE A CITY LIKE CHONGQING. BUT ONE THING WE SEE COMING HERE IS THAT IT LOOKS VERY BUILT UP, IN FACT OVERBUILT. IT LOOKS LIKE THERE IS TOO MUCH SUPPLY. DOES THE GOVERNMENT KNOW WHAT IT IS DOING APPROVING AND IN SOME CASES FUNDING SO MANY APARTMENT BUILDINGS?

MAYOR HUANG: With these four measures in place we have already found the proper pace of the property market and the rational relationship between supply and demand.

Talking about the overall size of the (residential) construction, I think we always deal with five ratios. The first one is the per capita gross floor area is maintained below 40 square meters. (In rural parts of) Chongqing Municipality this figure is maintained below 30 square meters. (In areas) consisting of a population above 10 million, the total construction area needed will be 400 million square meters…We keep a very well measured pace. We do not hope to see the construction of all those well needed houses within a concentrated period say two or five years.

When it comes to office buildings there is a ratio that we bear in mind. For every 10,000 yuan of GDP the office building area needed is 0.5 square meter. And if we have 1 trillion yuan GDP it means that the office area needed will be 50 million square meters. If the GDP expands to 2 trillion yuan GDP it means that the office area needed will also be expanded to 100 million square meters.

I’m asked why there are prices of 20,000 yuan per square meter on the market, I’d like to say the reason is very simple…50% of the GDP is generated through the service industry. If you take the economic structure at large, the average price of all the factors, taking into consideration the average price on the market will be 20,000 yuan per square meter.

And there is also a ratio governing the commercial sector, for example the department stores in the shopping malls. It depends on the retail sales. We have annual retail sales of 300 billion yuan, so we need 30 million square meters of commercial house.

And our fifth ratio is about the renovation of shanty towns. For example, in various areas we have knocked down a big area of shabby houses. There is a ratio. Each 10,000 square meters of those shabby houses knocked down will be compensated by newly constructed areas of 15,000 square meters.

You’ll find that all these measures are done according to the market philosophies and we are very good at mathematics here. We always take into consideration the people’s demand, the economic capacity in building these housing products. We do not hope to see those newly built houses just left empty.

WSJ: WHAT DO YOU THINK FOREIGN ANALYSTS ARE MISUNDERSTANDING ABOUT CHINA’S PROPERTY MARKET POLICY? YOU TALK AS IF THE MARKET IS UNDER CONTROL. THERE IS A WIDESPREAD FEELING THAT THERE IS SOMETHING SERIOUSLY WRONG WITH THE PROPERTY MARKET. WHAT DO CRITICS NOT UNDERSTAND ABOUT YOUR POLICIES?

MAYOR HUANG: We cannot say that with all this evidence the foreign analysts are totally wrong. But sometimes they do not have the first-hand data on the local situation. For example they do not have the full access to the figures and data here in Chongqing’s market.

Perhaps they just look at the data of other Chinese cities, for example the city of Hangzhou. And by using those data to analyze the situation here in Chongqing of course they will come to a wrong conclusion. It is just like you could not blame Europe for the problems in the United States.

Since you asked me my assessment of the Chinese property market…as a whole whether I am as pessimistic as some foreign analysts in the Chinese market. Actually I think some assessments from foreign analysts come to an extreme. Indeed there are three major problems in the Chinese property market and we will correct these three problems and solve these problems in the future. But I don’t think the situation is as pessimistic as some foreign analysts said.

In the Tier 1 (Chinese) cities indeed there are problems of excessively high prices. In those cities you’ll also find a very high empty ratio of the property markets because many home buyers just come to buy the products out of speculative purposes. There are too many speculative purchases. In those Tier 1 cities, you’ll find that sometimes after the tendering process concluded the land price was even higher than the house-price itself. And when it comes to the financial regulation, I don’t think the authorities have come up with an accurate and appropriate leverage ratio. Indeed there are quite a lot of bubbles on the market.

In some big and medium cities in coastal China, due to these several factors — the high price, the high empty rate and the high land and inappropriate leverage ratio — there are indeed bubbles emerging on the market and basically something that we must probably address in the future.

I think there are three fundamentals that cannot be overlooked otherwise we will come to a wrong conclusion about the market prospects in the next 10 years. We have to understand that in some Tier 2 or  Tier 3 cities in inland China — for example Chongqing, Chengdu, Xian and Wuhan — I think the price is rather rational. There wasn’t too much bubble.

Currently the urbanization rate in China is 40%. In the next 10 to 20 years, the urbanization rate will continue to grow to 50% or even 60%. It means that farmers will be moving to the cities and becoming city residents. And during this process there is a very rapid increase in the demand of the property products. And this is rigid demand. For example each person needs on average 30 square meters of living area. If there an incoming of 100 million farmers into cities it means hundreds of millions of newly built housing areas are needed.

In the United States and Europe the situation is broadly different. The urbanization rate has been approaching 80%. The property market has been saturated. This is not the story in China. If you compare China with the United States and Europe you will find a lot of differences.

Secondly, presently China’s GDP per capita stands at $4,000. And in the next 10 years the per capita GDP will be increasing to $10,000 and in the next 20 years $20,000. It represents a huge demand for better homes, high-end apartments because during this process people would like to improve their housing conditions. So it means its huge and sustained demand in the next 10 years, or even to 20 years. When the per capita GDP comes to a stage ranging between $30,000 and $50,000 houses are no longer the priority for residents. But when we are moving up from the per capita GDP of $4,000 to $20,000, houses are the most preferred consumer goods by the residents. Thirdly I think the Chinese government is very good at macro control and regulation. It is also very good at sizing up the situation and correcting the deviation to the right path. Perhaps in the past the government was inexperienced because such restrictive measures were adopted on the real-estate market and restraining the access to the get the loans. But now we come to such an understanding that it will be fine only if we come up with an appropriate leverage ratio of the mortgage loan. And in the past, the tax was collected during the transaction process, now we are paying greater attention to collect tax from owning the products. The same is also true to regulating the land price. All in all we are summarizing the previous experience and trying to do a better job…

In any country, I think it is true that the real-estate industry is the pillar industry of the national economy. It is about the social well-being of the people and it creates social assets, or wealth. So I think I have the confidence to see the house development of the property market of China. So we should not be that pessimistic.

WSJ: WE VISITED SOCIAL HOUSING. THE APARTMENTS WERE WELL PRICED, ACCORDING TO RESIDENTS. BUT IN A PROJECT NEAR THE NEWLY CONSTRUCTED UNIVERSITY DISTRICT, THEY APPEARED TO BE HAVING TROUBLE FILLING IT UP. IN ANOTHER PROJECT CLOSER TO TOWN, RESIDENTS WHO HAD JUST MOVED IN WERE COMPLAINING ABOUT POORLY MADE HOUSES. IS THIS GOVERNMENT-LED EFFORT A BIT OUT OF SYNC WITH WHAT THE PEOPLE WANT?

MAYOR HUANG: Talking about the university district, we are indeed seeing an increasing number of students and ordinary residents moving in. So there is a growing demand for housing products there. Next year, we will extend the subway light rail line to that district. Now there has already been one highway linking the district with the downtown. Next year there will be another two. In terms of bus service, there are only a few nowadays but there will be more and more bus lines in the years to come. If you only look at the situation now because there is only a limited number of people moved in perhaps there are some problems. There are inadequacies we must make up.

But we need a process. If you only look at the complaints for those tenants who only lived there one day or one month or even one year, perhaps you are magnifying the problem. But on the government side if there were no measures taken to improve the situation in 10 or 20 years I can call this government irresponsible. I think in the next three to five years the expansion of the subways, the buses, the other services like the banks, movie theaters, schools, hospitals.

But not everything could be put there overnight. It is not a magic game. And if say in 10 years there is no improvement at all in the local situation I strongly encourage the residents to raise their complaints and I even encourage them to go to the streets to protest.

If you only look at the current problem, I think it is just like using a magnifying glass to check the quality of the skin of a beautiful lady. Here I could say in such a way, we have already done a very good job. If you look at the situation in the subway in the United States I think we are much better.

We have already put in place a comprehensive checking system to check whether these public housing sites are up to the demand of local residents. In about 20 public housing sites in Chongqing when the construction started we already required the builders to provide the services at the same time, at the same pace. Usually within a half year or year all of those service facilities will be on the ground.

We particularly focus on five areas in providing public services to the residents: the first is transportation convenience, for example whether the site will be served by public transportation means subways, buses. Second, the public facilities: gas, running water, electricity and sewage treatment facilities. Thirdly: schools, theaters and other cultural facilities. Fourthly, the shops and retail stores should be there.

Fifthly, we have to provide people employment opportunities in the surrounding areas. For example ,the sites should be located close to the factories and the job opportunities. We do not hope to see that people travel back and forth from their homes and workplaces like the rising and falling of sea waves. From the very beginning of the construction of these sites we have already taken in consideration all of these issues.

I was just talking about the government facilities. Families have different levels of demand. Those demands should be fulfilled by the market forces. I’m confident that after the sites are put to use in three or five years, this place will prosper because of the market forces.

–James T. Areddy; follow him on Twitter @jamestareddy

The 59-year-old has been Chongqing mayor since January 2010, following around nine years as vice mayor of the sprawling municipality of 30 million people. Previously, he was deputy Communist Party Secretary of Shanghai, where he was an important force in the development of the city’s Pudong New District.

Mr. Huang was born in the eastern province of Zhejiang.

Over two hours on Nov. 25, 2011, the mayor spoke with Wall Street Journal reporter James T. Areddy in a boardroom adjacent to his office in the Chongqing municipal government’s leafy riverside compound. Wearing a black polo shirt, he discussed Chongqing’s goals for real-estate affordability, regulation and development, supporting his technocratic arguments with an array of figures and by making comparisons with the situation in the U.S. property market.

He concluded the interview by lighting a large cigar.

Here are translated excerpts:

WSJ: PLEASE EXPLAIN YOUR PHILOSOPHY IN TERMS OF GOVERNMENT REGULATION OF THE PROPERTY MARKET?

Mayor Huang: I think the pattern of property products should be based on two tracks, the first one is the commercial housing the second is public housing. No matter what measures and controls will be adopted in the commercial sector, six or seven years of family income will be enough to support a family to purchase a house.

(Even so) there are still a large number of low-income people who cannot afford housing. So I think it comes to the government to show its responsibility to provide them this housing. In any city or nation, I think the dual track system is very important: 60-70% commercial housing and 30-40%  public housing.

So this is our philosophy to provide housing to the general public through these two tracks.

For a reasonable pricing regime, it should take a family six or seven years of annual income to buy outright commercial housing. This is a directional pattern. Of course, there are some high income people who can afford to buy a villa. In general, I think it is rational and reasonable for a family to spend six or seven years of annual income to buy a house. This is also a target of the government adjustment and control measures in the commercial housing sector.

Property products also belong to the category of consumer goods. So it comes to a supply and demand driven relationship. If there is an oversupply I think the price will be dragged down, and vice versa. The government should shoulder its due responsibility strike a balance in this relationship between supply and demand.

The other nature of property products is that they are also capital goods, since the family would usually like to hold this asset for a very long term. It is a very important issue for us to consider whether to collect tax by treating the property as consumer goods or as family assets.

It is different from, for example, cosmetic products which are purely consumer goods and the tax should naturally be collected during the process of production and transaction. But when you collect tax from the transaction process this process will push up higher the price of the products.

We should have a clear view of the nature of the property products as a capital good. By collecting property tax, I think we will be able to dampen the speculation in the market. Today in China, the tax is only collected in the transaction. When it comes to the property market, this is something different from the United States. We know in the U.S., you have the property tax and for that reason we should really learn the experience from the United States.

Property products are also financial goods. Bank loans are heavily involved during the whole process starting with construction to purchasing. The market is very much affected by monetary policy. So I think in carrying out government macro control and adjustment we should rely on financial tools.

I think the most important tool for us to regulate and adjust the property market is the leverage ratio of the mortgage loan.

If the pressure is purely made through mortgage loans, which means zero down-payment, I think it will be the worst case scenario for the market and create excessive bubbles. I think is also one of the reasons triggering the sub-prime loan crisis in the United States.

And if the situation goes the other extreme, take this for example zero-mortgage and 100% down-payment, I think 90% of the potential buyers could not afford the purchasing homes, and this is only a market serving the rich people. This would be a disaster for the national property market. What I mean here is a proper balance to be found between these two extremes.

We have already adopted four specific measures to regulate and address the property market in Chongqing. First of all we look at property as consumer goods, so we struck a balance between the supply and demand. Each year the government investment in the property market will be no larger than 20% of government investment in fixed assets. Thirdly, we have already initiated some pilot projects here in Chongqing in collecting property tax. Fourthly, we also came up with a rational leverage ratio in terms of mortgage loans. The first time buyers have to pay 30% down payment, the second home needs you to pay 60% down payment and purchasing the third home you have to pay fully.

I think my model here covering these four aspects is really working very well here in Chongqing and I think it will also work very well in China at large, and even I think we can provide this model to the United States for its reference.

I think with these four measures effectively implemented we will accomplish that objective to enable the home buyers to buy a home with six or seven years of family income. If there is any one of these four measures that fails to be properly implemented I think there will be two kinds of scenarios: first of all excessive bubbles on the market and secondly sluggishness of the market.

In the past 10 years in the United States we saw that around the year 2000 the financial companies came up with the sub-prime loan products and it only took six or seven years to create excessive bubbles on the market, which led to the crisis in 2008. That crisis cut the value of the market by 30%. I think this is something triggered by the policy of zero down payment.

WSJ: IF THE PRICES IN CHONGQING GET TO 6-7 YEARS OF FAMILY INCOME, PRICES NEED TO FALL. AS YOU IMPLEMENT THIS POLICY, WHO DO YOU EXPECT TO BE HURT: DEVELOPERS, HOMEOWNERS, BANKS OR GOVERNMENT? AND DO YOU HAVE A GOAL TO CRASH THE PROPERTY MARKET?

MAYOR HUANG: I think I mentioned the four measures have already been effectively adopted and implemented here in Chongqing. This has already been something taking place on the market that they buy their home with six or seven years of income. This is not an objective that we are going to obtain. Actually this is the reality.

In September of this year, the average property price here in Chongqing was 6,300 yuan per square meter (about $985). I think if a three-person family, for them to buy a 60-square-meter condominium, according to this average price it will cost them 500,000 yuan. In the major urban area, the average annual income per person is 20,000 yuan so a three-person family earns about 70,000 yuan per year. If you look at Chongqing Municipality as a whole, because there are some rural areas, the average family income is 60,000 yuan.

So if you do some math here you will find it will cause them really seven years to buy a condo priced at 500,000 yuan. Of course in the years ahead there will be increases of GDP, increases of family income and the price of property will also go up. But I think balance will always be there.

In some other Chinese cities you will find it takes a family 20 years of income to buy a house. That is because they do not have those four measures effectively implemented.

We don’t hope to see the bubbles, nor do we hope to see the collapse of the market. This is in the interest of no one, not in the interest of the government, not developers, not the homeowners. So I think this is a very sacred responsibility of the government to accomplish that objective: six or seven years of family annual income to buy a house.

I think another objective of the government macro-control and management efforts is to strike a proper balance between the property market value with GDP. If the market value to GDP ratio is one to one I think our objective to buy a house with six or seven years of family income will be realized.

There are 300 million people in the United States and the average living area is 40 square meters, according to our statistics. You will find that if the average price is $2,600 per square meter and for a three-person family 120 square meters of living area it will cost a family $300,000 in total to buy that house. And if you look at the GDP of the United States in per capita terms, the per capita GDP is $50,000 each year. But 60% is the government revenues and corporate profits, so it means that the net cash income per head is $20,000. If you do some calculations for a three-person family the annual income is perhaps $50,000 or $60,000.

So if you check these figures you will see it takes these families six years to buy a house the total value of which is $300,000.

If we go back to the year 2007 we saw that year the GDP of the United States was roughly $13 trillion. But due to the later occurrence of sub-prime loan crisis, bubbles were created on the market. That same year the property market value was $17 trillion. So the property market value was 50% higher than the GDP size. In this case, you will see the creation of bubbles.

Now the prices have bottomed out and during the past years we saw the value of the property market went down another 30%. So based on statistics, the market value currently in the United States is $14 trillion and the GDP size is roughly around $14 trillion. I think the bubbles have been squeezed out. I think this balance should be properly maintained in the future.

Perhaps you will find that provincial mayors would like to provide their wisdom to the United States. I’m one of them.

WSJ: THERE IS NO PLACE IN THE UNITED STATES THAT LOOKS LIKE CHONGQING. I DON’T THINK MOST AMERICANS COULD IMAGINE A CITY LIKE CHONGQING. BUT ONE THING WE SEE COMING HERE IS THAT IT LOOKS VERY BUILT UP, IN FACT OVERBUILT. IT LOOKS LIKE THERE IS TOO MUCH SUPPLY. DOES THE GOVERNMENT KNOW WHAT IT IS DOING APPROVING AND IN SOME CASES FUNDING SO MANY APARTMENT BUILDINGS?

MAYOR HUANG: With these four measures in place we have already found the proper pace of the property market and the rational relationship between supply and demand.

Talking about the overall size of the (residential) construction, I think we always deal with five ratios. The first one is the per capita gross floor area is maintained below 40 square meters. (In rural parts of) Chongqing Municipality this figure is maintained below 30 square meters. (In areas) consisting of a population above 10 million, the total construction area needed will be 400 million square meters…We keep a very well measured pace. We do not hope to see the construction of all those well needed houses within a concentrated period say two or five years.

When it comes to office buildings there is a ratio that we bear in mind. For every 10,000 yuan of GDP the office building area needed is 0.5 square meter. And if we have 1 trillion yuan GDP it means that the office area needed will be 50 million square meters. If the GDP expands to 2 trillion yuan GDP it means that the office area needed will also be expanded to 100 million square meters.

I’m asked why there are prices of 20,000 yuan per square meter on the market, I’d like to say the reason is very simple…50% of the GDP is generated through the service industry. If you take the economic structure at large, the average price of all the factors, taking into consideration the average price on the market will be 20,000 yuan per square meter.

And there is also a ratio governing the commercial sector, for example the department stores in the shopping malls. It depends on the retail sales. We have annual retail sales of 300 billion yuan, so we need 30 million square meters of commercial house.

And our fifth ratio is about the renovation of shanty towns. For example, in various areas we have knocked down a big area of shabby houses. There is a ratio. Each 10,000 square meters of those shabby houses knocked down will be compensated by newly constructed areas of 15,000 square meters.

You’ll find that all these measures are done according to the market philosophies and we are very good at mathematics here. We always take into consideration the people’s demand, the economic capacity in building these housing products. We do not hope to see those newly built houses just left empty.

WSJ: WHAT DO YOU THINK FOREIGN ANALYSTS ARE MISUNDERSTANDING ABOUT CHINA’S PROPERTY MARKET POLICY? YOU TALK AS IF THE MARKET IS UNDER CONTROL. THERE IS A WIDESPREAD FEELING THAT THERE IS SOMETHING SERIOUSLY WRONG WITH THE PROPERTY MARKET. WHAT DO CRITICS NOT UNDERSTAND ABOUT YOUR POLICIES?

MAYOR HUANG: We cannot say that with all this evidence the foreign analysts are totally wrong. But sometimes they do not have the first-hand data on the local situation. For example they do not have the full access to the figures and data here in Chongqing’s market.

Perhaps they just look at the data of other Chinese cities, for example the city of Hangzhou. And by using those data to analyze the situation here in Chongqing of course they will come to a wrong conclusion. It is just like you could not blame Europe for the problems in the United States.

Since you asked me my assessment of the Chinese property market…as a whole whether I am as pessimistic as some foreign analysts in the Chinese market. Actually I think some assessments from foreign analysts come to an extreme. Indeed there are three major problems in the Chinese property market and we will correct these three problems and solve these problems in the future. But I don’t think the situation is as pessimistic as some foreign analysts said.

In the Tier 1 (Chinese) cities indeed there are problems of excessively high prices. In those cities you’ll also find a very high empty ratio of the property markets because many home buyers just come to buy the products out of speculative purposes. There are too many speculative purchases. In those Tier 1 cities, you’ll find that sometimes after the tendering process concluded the land price was even higher than the house-price itself. And when it comes to the financial regulation, I don’t think the authorities have come up with an accurate and appropriate leverage ratio. Indeed there are quite a lot of bubbles on the market.

In some big and medium cities in coastal China, due to these several factors — the high price, the high empty rate and the high land and inappropriate leverage ratio — there are indeed bubbles emerging on the market and basically something that we must probably address in the future.

I think there are three fundamentals that cannot be overlooked otherwise we will come to a wrong conclusion about the market prospects in the next 10 years. We have to understand that in some Tier 2 or  Tier 3 cities in inland China — for example Chongqing, Chengdu, Xian and Wuhan — I think the price is rather rational. There wasn’t too much bubble.

Currently the urbanization rate in China is 40%. In the next 10 to 20 years, the urbanization rate will continue to grow to 50% or even 60%. It means that farmers will be moving to the cities and becoming city residents. And during this process there is a very rapid increase in the demand of the property products. And this is rigid demand. For example each person needs on average 30 square meters of living area. If there an incoming of 100 million farmers into cities it means hundreds of millions of newly built housing areas are needed.

In the United States and Europe the situation is broadly different. The urbanization rate has been approaching 80%. The property market has been saturated. This is not the story in China. If you compare China with the United States and Europe you will find a lot of differences.

Secondly, presently China’s GDP per capita stands at $4,000. And in the next 10 years the per capita GDP will be increasing to $10,000 and in the next 20 years $20,000. It represents a huge demand for better homes, high-end apartments because during this process people would like to improve their housing conditions. So it means its huge and sustained demand in the next 10 years, or even to 20 years. When the per capita GDP comes to a stage ranging between $30,000 and $50,000 houses are no longer the priority for residents. But when we are moving up from the per capita GDP of $4,000 to $20,000, houses are the most preferred consumer goods by the residents. Thirdly I think the Chinese government is very good at macro control and regulation. It is also very good at sizing up the situation and correcting the deviation to the right path. Perhaps in the past the government was inexperienced because such restrictive measures were adopted on the real-estate market and restraining the access to the get the loans. But now we come to such an understanding that it will be fine only if we come up with an appropriate leverage ratio of the mortgage loan. And in the past, the tax was collected during the transaction process, now we are paying greater attention to collect tax from owning the products. The same is also true to regulating the land price. All in all we are summarizing the previous experience and trying to do a better job…

In any country, I think it is true that the real-estate industry is the pillar industry of the national economy. It is about the social well-being of the people and it creates social assets, or wealth. So I think I have the confidence to see the house development of the property market of China. So we should not be that pessimistic.

WSJ: WE VISITED SOCIAL HOUSING. THE APARTMENTS WERE WELL PRICED, ACCORDING TO RESIDENTS. BUT IN A PROJECT NEAR THE NEWLY CONSTRUCTED UNIVERSITY DISTRICT, THEY APPEARED TO BE HAVING TROUBLE FILLING IT UP. IN ANOTHER PROJECT CLOSER TO TOWN, RESIDENTS WHO HAD JUST MOVED IN WERE COMPLAINING ABOUT POORLY MADE HOUSES. IS THIS GOVERNMENT-LED EFFORT A BIT OUT OF SYNC WITH WHAT THE PEOPLE WANT?

MAYOR HUANG: Talking about the university district, we are indeed seeing an increasing number of students and ordinary residents moving in. So there is a growing demand for housing products there. Next year, we will extend the subway light rail line to that district. Now there has already been one highway linking the district with the downtown. Next year there will be another two. In terms of bus service, there are only a few nowadays but there will be more and more bus lines in the years to come. If you only look at the situation now because there is only a limited number of people moved in perhaps there are some problems. There are inadequacies we must make up.

But we need a process. If you only look at the complaints for those tenants who only lived there one day or one month or even one year, perhaps you are magnifying the problem. But on the government side if there were no measures taken to improve the situation in 10 or 20 years I can call this government irresponsible. I think in the next three to five years the expansion of the subways, the buses, the other services like the banks, movie theaters, schools, hospitals.

But not everything could be put there overnight. It is not a magic game. And if say in 10 years there is no improvement at all in the local situation I strongly encourage the residents to raise their complaints and I even encourage them to go to the streets to protest.

If you only look at the current problem, I think it is just like using a magnifying glass to check the quality of the skin of a beautiful lady. Here I could say in such a way, we have already done a very good job. If you look at the situation in the subway in the United States I think we are much better.

We have already put in place a comprehensive checking system to check whether these public housing sites are up to the demand of local residents. In about 20 public housing sites in Chongqing when the construction started we already required the builders to provide the services at the same time, at the same pace. Usually within a half year or year all of those service facilities will be on the ground.

We particularly focus on five areas in providing public services to the residents: the first is transportation convenience, for example whether the site will be served by public transportation means subways, buses. Second, the public facilities: gas, running water, electricity and sewage treatment facilities. Thirdly: schools, theaters and other cultural facilities. Fourthly, the shops and retail stores should be there.

Fifthly, we have to provide people employment opportunities in the surrounding areas. For example ,the sites should be located close to the factories and the job opportunities. We do not hope to see that people travel back and forth from their homes and workplaces like the rising and falling of sea waves. From the very beginning of the construction of these sites we have already taken in consideration all of these issues.

I was just talking about the government facilities. Families have different levels of demand. Those demands should be fulfilled by the market forces. I’m confident that after the sites are put to use in three or five years, this place will prosper because of the market forces.

–James T. Areddy; follow him on Twitter @jamestareddy

The 59-year-old has been Chongqing mayor since January 2010, following around nine years as vice mayor of the sprawling municipality of 30 million people. Previously, he was deputy Communist Party Secretary of Shanghai, where he was an important force in the development of the city’s Pudong New District.

Mr. Huang was born in the eastern province of Zhejiang.

Over two hours on Nov. 25, 2011, the mayor spoke with Wall Street Journal reporter James T. Areddy in a boardroom adjacent to his office in the Chongqing municipal government’s leafy riverside compound. Wearing a black polo shirt, he discussed Chongqing’s goals for real-estate affordability, regulation and development, supporting his technocratic arguments with an array of figures and by making comparisons with the situation in the U.S. property market.

He concluded the interview by lighting a large cigar.

Here are translated excerpts:

WSJ: PLEASE EXPLAIN YOUR PHILOSOPHY IN TERMS OF GOVERNMENT REGULATION OF THE PROPERTY MARKET?

Mayor Huang: I think the pattern of property products should be based on two tracks, the first one is the commercial housing the second is public housing. No matter what measures and controls will be adopted in the commercial sector, six or seven years of family income will be enough to support a family to purchase a house.

(Even so) there are still a large number of low-income people who cannot afford housing. So I think it comes to the government to show its responsibility to provide them this housing. In any city or nation, I think the dual track system is very important: 60-70% commercial housing and 30-40%  public housing.

So this is our philosophy to provide housing to the general public through these two tracks.

For a reasonable pricing regime, it should take a family six or seven years of annual income to buy outright commercial housing. This is a directional pattern. Of course, there are some high income people who can afford to buy a villa. In general, I think it is rational and reasonable for a family to spend six or seven years of annual income to buy a house. This is also a target of the government adjustment and control measures in the commercial housing sector.

Property products also belong to the category of consumer goods. So it comes to a supply and demand driven relationship. If there is an oversupply I think the price will be dragged down, and vice versa. The government should shoulder its due responsibility strike a balance in this relationship between supply and demand.

The other nature of property products is that they are also capital goods, since the family would usually like to hold this asset for a very long term. It is a very important issue for us to consider whether to collect tax by treating the property as consumer goods or as family assets.

It is different from, for example, cosmetic products which are purely consumer goods and the tax should naturally be collected during the process of production and transaction. But when you collect tax from the transaction process this process will push up higher the price of the products.

We should have a clear view of the nature of the property products as a capital good. By collecting property tax, I think we will be able to dampen the speculation in the market. Today in China, the tax is only collected in the transaction. When it comes to the property market, this is something different from the United States. We know in the U.S., you have the property tax and for that reason we should really learn the experience from the United States.

Property products are also financial goods. Bank loans are heavily involved during the whole process starting with construction to purchasing. The market is very much affected by monetary policy. So I think in carrying out government macro control and adjustment we should rely on financial tools.

I think the most important tool for us to regulate and adjust the property market is the leverage ratio of the mortgage loan.

If the pressure is purely made through mortgage loans, which means zero down-payment, I think it will be the worst case scenario for the market and create excessive bubbles. I think is also one of the reasons triggering the sub-prime loan crisis in the United States.

And if the situation goes the other extreme, take this for example zero-mortgage and 100% down-payment, I think 90% of the potential buyers could not afford the purchasing homes, and this is only a market serving the rich people. This would be a disaster for the national property market. What I mean here is a proper balance to be found between these two extremes.

We have already adopted four specific measures to regulate and address the property market in Chongqing. First of all we look at property as consumer goods, so we struck a balance between the supply and demand. Each year the government investment in the property market will be no larger than 20% of government investment in fixed assets. Thirdly, we have already initiated some pilot projects here in Chongqing in collecting property tax. Fourthly, we also came up with a rational leverage ratio in terms of mortgage loans. The first time buyers have to pay 30% down payment, the second home needs you to pay 60% down payment and purchasing the third home you have to pay fully.

I think my model here covering these four aspects is really working very well here in Chongqing and I think it will also work very well in China at large, and even I think we can provide this model to the United States for its reference.

I think with these four measures effectively implemented we will accomplish that objective to enable the home buyers to buy a home with six or seven years of family income. If there is any one of these four measures that fails to be properly implemented I think there will be two kinds of scenarios: first of all excessive bubbles on the market and secondly sluggishness of the market.

In the past 10 years in the United States we saw that around the year 2000 the financial companies came up with the sub-prime loan products and it only took six or seven years to create excessive bubbles on the market, which led to the crisis in 2008. That crisis cut the value of the market by 30%. I think this is something triggered by the policy of zero down payment.

WSJ: IF THE PRICES IN CHONGQING GET TO 6-7 YEARS OF FAMILY INCOME, PRICES NEED TO FALL. AS YOU IMPLEMENT THIS POLICY, WHO DO YOU EXPECT TO BE HURT: DEVELOPERS, HOMEOWNERS, BANKS OR GOVERNMENT? AND DO YOU HAVE A GOAL TO CRASH THE PROPERTY MARKET?

MAYOR HUANG: I think I mentioned the four measures have already been effectively adopted and implemented here in Chongqing. This has already been something taking place on the market that they buy their home with six or seven years of income. This is not an objective that we are going to obtain. Actually this is the reality.

In September of this year, the average property price here in Chongqing was 6,300 yuan per square meter (about $985). I think if a three-person family, for them to buy a 60-square-meter condominium, according to this average price it will cost them 500,000 yuan. In the major urban area, the average annual income per person is 20,000 yuan so a three-person family earns about 70,000 yuan per year. If you look at Chongqing Municipality as a whole, because there are some rural areas, the average family income is 60,000 yuan.

So if you do some math here you will find it will cause them really seven years to buy a condo priced at 500,000 yuan. Of course in the years ahead there will be increases of GDP, increases of family income and the price of property will also go up. But I think balance will always be there.

In some other Chinese cities you will find it takes a family 20 years of income to buy a house. That is because they do not have those four measures effectively implemented.

We don’t hope to see the bubbles, nor do we hope to see the collapse of the market. This is in the interest of no one, not in the interest of the government, not developers, not the homeowners. So I think this is a very sacred responsibility of the government to accomplish that objective: six or seven years of family annual income to buy a house.

I think another objective of the government macro-control and management efforts is to strike a proper balance between the property market value with GDP. If the market value to GDP ratio is one to one I think our objective to buy a house with six or seven years of family income will be realized.

There are 300 million people in the United States and the average living area is 40 square meters, according to our statistics. You will find that if the average price is $2,600 per square meter and for a three-person family 120 square meters of living area it will cost a family $300,000 in total to buy that house. And if you look at the GDP of the United States in per capita terms, the per capita GDP is $50,000 each year. But 60% is the government revenues and corporate profits, so it means that the net cash income per head is $20,000. If you do some calculations for a three-person family the annual income is perhaps $50,000 or $60,000.

So if you check these figures you will see it takes these families six years to buy a house the total value of which is $300,000.

If we go back to the year 2007 we saw that year the GDP of the United States was roughly $13 trillion. But due to the later occurrence of sub-prime loan crisis, bubbles were created on the market. That same year the property market value was $17 trillion. So the property market value was 50% higher than the GDP size. In this case, you will see the creation of bubbles.

Now the prices have bottomed out and during the past years we saw the value of the property market went down another 30%. So based on statistics, the market value currently in the United States is $14 trillion and the GDP size is roughly around $14 trillion. I think the bubbles have been squeezed out. I think this balance should be properly maintained in the future.

Perhaps you will find that provincial mayors would like to provide their wisdom to the United States. I’m one of them.

WSJ: THERE IS NO PLACE IN THE UNITED STATES THAT LOOKS LIKE CHONGQING. I DON’T THINK MOST AMERICANS COULD IMAGINE A CITY LIKE CHONGQING. BUT ONE THING WE SEE COMING HERE IS THAT IT LOOKS VERY BUILT UP, IN FACT OVERBUILT. IT LOOKS LIKE THERE IS TOO MUCH SUPPLY. DOES THE GOVERNMENT KNOW WHAT IT IS DOING APPROVING AND IN SOME CASES FUNDING SO MANY APARTMENT BUILDINGS?

MAYOR HUANG: With these four measures in place we have already found the proper pace of the property market and the rational relationship between supply and demand.

Talking about the overall size of the (residential) construction, I think we always deal with five ratios. The first one is the per capita gross floor area is maintained below 40 square meters. (In rural parts of) Chongqing Municipality this figure is maintained below 30 square meters. (In areas) consisting of a population above 10 million, the total construction area needed will be 400 million square meters…We keep a very well measured pace. We do not hope to see the construction of all those well needed houses within a concentrated period say two or five years.

When it comes to office buildings there is a ratio that we bear in mind. For every 10,000 yuan of GDP the office building area needed is 0.5 square meter. And if we have 1 trillion yuan GDP it means that the office area needed will be 50 million square meters. If the GDP expands to 2 trillion yuan GDP it means that the office area needed will also be expanded to 100 million square meters.

I’m asked why there are prices of 20,000 yuan per square meter on the market, I’d like to say the reason is very simple…50% of the GDP is generated through the service industry. If you take the economic structure at large, the average price of all the factors, taking into consideration the average price on the market will be 20,000 yuan per square meter.

And there is also a ratio governing the commercial sector, for example the department stores in the shopping malls. It depends on the retail sales. We have annual retail sales of 300 billion yuan, so we need 30 million square meters of commercial house.

And our fifth ratio is about the renovation of shanty towns. For example, in various areas we have knocked down a big area of shabby houses. There is a ratio. Each 10,000 square meters of those shabby houses knocked down will be compensated by newly constructed areas of 15,000 square meters.

You’ll find that all these measures are done according to the market philosophies and we are very good at mathematics here. We always take into consideration the people’s demand, the economic capacity in building these housing products. We do not hope to see those newly built houses just left empty.

WSJ: WHAT DO YOU THINK FOREIGN ANALYSTS ARE MISUNDERSTANDING ABOUT CHINA’S PROPERTY MARKET POLICY? YOU TALK AS IF THE MARKET IS UNDER CONTROL. THERE IS A WIDESPREAD FEELING THAT THERE IS SOMETHING SERIOUSLY WRONG WITH THE PROPERTY MARKET. WHAT DO CRITICS NOT UNDERSTAND ABOUT YOUR POLICIES?

MAYOR HUANG: We cannot say that with all this evidence the foreign analysts are totally wrong. But sometimes they do not have the first-hand data on the local situation. For example they do not have the full access to the figures and data here in Chongqing’s market.

Perhaps they just look at the data of other Chinese cities, for example the city of Hangzhou. And by using those data to analyze the situation here in Chongqing of course they will come to a wrong conclusion. It is just like you could not blame Europe for the problems in the United States.

Since you asked me my assessment of the Chinese property market…as a whole whether I am as pessimistic as some foreign analysts in the Chinese market. Actually I think some assessments from foreign analysts come to an extreme. Indeed there are three major problems in the Chinese property market and we will correct these three problems and solve these problems in the future. But I don’t think the situation is as pessimistic as some foreign analysts said.

In the Tier 1 (Chinese) cities indeed there are problems of excessively high prices. In those cities you’ll also find a very high empty ratio of the property markets because many home buyers just come to buy the products out of speculative purposes. There are too many speculative purchases. In those Tier 1 cities, you’ll find that sometimes after the tendering process concluded the land price was even higher than the house-price itself. And when it comes to the financial regulation, I don’t think the authorities have come up with an accurate and appropriate leverage ratio. Indeed there are quite a lot of bubbles on the market.

In some big and medium cities in coastal China, due to these several factors — the high price, the high empty rate and the high land and inappropriate leverage ratio — there are indeed bubbles emerging on the market and basically something that we must probably address in the future.

I think there are three fundamentals that cannot be overlooked otherwise we will come to a wrong conclusion about the market prospects in the next 10 years. We have to understand that in some Tier 2 or  Tier 3 cities in inland China — for example Chongqing, Chengdu, Xian and Wuhan — I think the price is rather rational. There wasn’t too much bubble.

Currently the urbanization rate in China is 40%. In the next 10 to 20 years, the urbanization rate will continue to grow to 50% or even 60%. It means that farmers will be moving to the cities and becoming city residents. And during this process there is a very rapid increase in the demand of the property products. And this is rigid demand. For example each person needs on average 30 square meters of living area. If there an incoming of 100 million farmers into cities it means hundreds of millions of newly built housing areas are needed.

In the United States and Europe the situation is broadly different. The urbanization rate has been approaching 80%. The property market has been saturated. This is not the story in China. If you compare China with the United States and Europe you will find a lot of differences.

Secondly, presently China’s GDP per capita stands at $4,000. And in the next 10 years the per capita GDP will be increasing to $10,000 and in the next 20 years $20,000. It represents a huge demand for better homes, high-end apartments because during this process people would like to improve their housing conditions. So it means its huge and sustained demand in the next 10 years, or even to 20 years. When the per capita GDP comes to a stage ranging between $30,000 and $50,000 houses are no longer the priority for residents. But when we are moving up from the per capita GDP of $4,000 to $20,000, houses are the most preferred consumer goods by the residents. Thirdly I think the Chinese government is very good at macro control and regulation. It is also very good at sizing up the situation and correcting the deviation to the right path. Perhaps in the past the government was inexperienced because such restrictive measures were adopted on the real-estate market and restraining the access to the get the loans. But now we come to such an understanding that it will be fine only if we come up with an appropriate leverage ratio of the mortgage loan. And in the past, the tax was collected during the transaction process, now we are paying greater attention to collect tax from owning the products. The same is also true to regulating the land price. All in all we are summarizing the previous experience and trying to do a better job…

In any country, I think it is true that the real-estate industry is the pillar industry of the national economy. It is about the social well-being of the people and it creates social assets, or wealth. So I think I have the confidence to see the house development of the property market of China. So we should not be that pessimistic.

WSJ: WE VISITED SOCIAL HOUSING. THE APARTMENTS WERE WELL PRICED, ACCORDING TO RESIDENTS. BUT IN A PROJECT NEAR THE NEWLY CONSTRUCTED UNIVERSITY DISTRICT, THEY APPEARED TO BE HAVING TROUBLE FILLING IT UP. IN ANOTHER PROJECT CLOSER TO TOWN, RESIDENTS WHO HAD JUST MOVED IN WERE COMPLAINING ABOUT POORLY MADE HOUSES. IS THIS GOVERNMENT-LED EFFORT A BIT OUT OF SYNC WITH WHAT THE PEOPLE WANT?

MAYOR HUANG: Talking about the university district, we are indeed seeing an increasing number of students and ordinary residents moving in. So there is a growing demand for housing products there. Next year, we will extend the subway light rail line to that district. Now there has already been one highway linking the district with the downtown. Next year there will be another two. In terms of bus service, there are only a few nowadays but there will be more and more bus lines in the years to come. If you only look at the situation now because there is only a limited number of people moved in perhaps there are some problems. There are inadequacies we must make up.

But we need a process. If you only look at the complaints for those tenants who only lived there one day or one month or even one year, perhaps you are magnifying the problem. But on the government side if there were no measures taken to improve the situation in 10 or 20 years I can call this government irresponsible. I think in the next three to five years the expansion of the subways, the buses, the other services like the banks, movie theaters, schools, hospitals.

But not everything could be put there overnight. It is not a magic game. And if say in 10 years there is no improvement at all in the local situation I strongly encourage the residents to raise their complaints and I even encourage them to go to the streets to protest.

If you only look at the current problem, I think it is just like using a magnifying glass to check the quality of the skin of a beautiful lady. Here I could say in such a way, we have already done a very good job. If you look at the situation in the subway in the United States I think we are much better.

We have already put in place a comprehensive checking system to check whether these public housing sites are up to the demand of local residents. In about 20 public housing sites in Chongqing when the construction started we already required the builders to provide the services at the same time, at the same pace. Usually within a half year or year all of those service facilities will be on the ground.

We particularly focus on five areas in providing public services to the residents: the first is transportation convenience, for example whether the site will be served by public transportation means subways, buses. Second, the public facilities: gas, running water, electricity and sewage treatment facilities. Thirdly: schools, theaters and other cultural facilities. Fourthly, the shops and retail stores should be there.

Fifthly, we have to provide people employment opportunities in the surrounding areas. For example ,the sites should be located close to the factories and the job opportunities. We do not hope to see that people travel back and forth from their homes and workplaces like the rising and falling of sea waves. From the very beginning of the construction of these sites we have already taken in consideration all of these issues.

I was just talking about the government facilities. Families have different levels of demand. Those demands should be fulfilled by the market forces. I’m confident that after the sites are put to use in three or five years, this place will prosper because of the market forces.

–James T. Areddy; follow him on Twitter @jamestareddy

The 59-year-old has been Chongqing mayor since January 2010, following around nine years as vice mayor of the sprawling municipality of 30 million people. Previously, he was deputy Communist Party Secretary of Shanghai, where he was an important force in the development of the city’s Pudong New District.

Mr. Huang was born in the eastern province of Zhejiang.

Over two hours on Nov. 25, 2011, the mayor spoke with Wall Street Journal reporter James T. Areddy in a boardroom adjacent to his office in the Chongqing municipal government’s leafy riverside compound. Wearing a black polo shirt, he discussed Chongqing’s goals for real-estate affordability, regulation and development, supporting his technocratic arguments with an array of figures and by making comparisons with the situation in the U.S. property market.

He concluded the interview by lighting a large cigar.

Here are translated excerpts:

WSJ: PLEASE EXPLAIN YOUR PHILOSOPHY IN TERMS OF GOVERNMENT REGULATION OF THE PROPERTY MARKET?

Mayor Huang: I think the pattern of property products should be based on two tracks, the first one is the commercial housing the second is public housing. No matter what measures and controls will be adopted in the commercial sector, six or seven years of family income will be enough to support a family to purchase a house.

(Even so) there are still a large number of low-income people who cannot afford housing. So I think it comes to the government to show its responsibility to provide them this housing. In any city or nation, I think the dual track system is very important: 60-70% commercial housing and 30-40%  public housing.

So this is our philosophy to provide housing to the general public through these two tracks.

For a reasonable pricing regime, it should take a family six or seven years of annual income to buy outright commercial housing. This is a directional pattern. Of course, there are some high income people who can afford to buy a villa. In general, I think it is rational and reasonable for a family to spend six or seven years of annual income to buy a house. This is also a target of the government adjustment and control measures in the commercial housing sector.

Property products also belong to the category of consumer goods. So it comes to a supply and demand driven relationship. If there is an oversupply I think the price will be dragged down, and vice versa. The government should shoulder its due responsibility strike a balance in this relationship between supply and demand.

The other nature of property products is that they are also capital goods, since the family would usually like to hold this asset for a very long term. It is a very important issue for us to consider whether to collect tax by treating the property as consumer goods or as family assets.

It is different from, for example, cosmetic products which are purely consumer goods and the tax should naturally be collected during the process of production and transaction. But when you collect tax from the transaction process this process will push up higher the price of the products.

We should have a clear view of the nature of the property products as a capital good. By collecting property tax, I think we will be able to dampen the speculation in the market. Today in China, the tax is only collected in the transaction. When it comes to the property market, this is something different from the United States. We know in the U.S., you have the property tax and for that reason we should really learn the experience from the United States.

Property products are also financial goods. Bank loans are heavily involved during the whole process starting with construction to purchasing. The market is very much affected by monetary policy. So I think in carrying out government macro control and adjustment we should rely on financial tools.

I think the most important tool for us to regulate and adjust the property market is the leverage ratio of the mortgage loan.

If the pressure is purely made through mortgage loans, which means zero down-payment, I think it will be the worst case scenario for the market and create excessive bubbles. I think is also one of the reasons triggering the sub-prime loan crisis in the United States.

And if the situation goes the other extreme, take this for example zero-mortgage and 100% down-payment, I think 90% of the potential buyers could not afford the purchasing homes, and this is only a market serving the rich people. This would be a disaster for the national property market. What I mean here is a proper balance to be found between these two extremes.

We have already adopted four specific measures to regulate and address the property market in Chongqing. First of all we look at property as consumer goods, so we struck a balance between the supply and demand. Each year the government investment in the property market will be no larger than 20% of government investment in fixed assets. Thirdly, we have already initiated some pilot projects here in Chongqing in collecting property tax. Fourthly, we also came up with a rational leverage ratio in terms of mortgage loans. The first time buyers have to pay 30% down payment, the second home needs you to pay 60% down payment and purchasing the third home you have to pay fully.

I think my model here covering these four aspects is really working very well here in Chongqing and I think it will also work very well in China at large, and even I think we can provide this model to the United States for its reference.

I think with these four measures effectively implemented we will accomplish that objective to enable the home buyers to buy a home with six or seven years of family income. If there is any one of these four measures that fails to be properly implemented I think there will be two kinds of scenarios: first of all excessive bubbles on the market and secondly sluggishness of the market.

In the past 10 years in the United States we saw that around the year 2000 the financial companies came up with the sub-prime loan products and it only took six or seven years to create excessive bubbles on the market, which led to the crisis in 2008. That crisis cut the value of the market by 30%. I think this is something triggered by the policy of zero down payment.

WSJ: IF THE PRICES IN CHONGQING GET TO 6-7 YEARS OF FAMILY INCOME, PRICES NEED TO FALL. AS YOU IMPLEMENT THIS POLICY, WHO DO YOU EXPECT TO BE HURT: DEVELOPERS, HOMEOWNERS, BANKS OR GOVERNMENT? AND DO YOU HAVE A GOAL TO CRASH THE PROPERTY MARKET?

MAYOR HUANG: I think I mentioned the four measures have already been effectively adopted and implemented here in Chongqing. This has already been something taking place on the market that they buy their home with six or seven years of income. This is not an objective that we are going to obtain. Actually this is the reality.

In September of this year, the average property price here in Chongqing was 6,300 yuan per square meter (about $985). I think if a three-person family, for them to buy a 60-square-meter condominium, according to this average price it will cost them 500,000 yuan. In the major urban area, the average annual income per person is 20,000 yuan so a three-person family earns about 70,000 yuan per year. If you look at Chongqing Municipality as a whole, because there are some rural areas, the average family income is 60,000 yuan.

So if you do some math here you will find it will cause them really seven years to buy a condo priced at 500,000 yuan. Of course in the years ahead there will be increases of GDP, increases of family income and the price of property will also go up. But I think balance will always be there.

In some other Chinese cities you will find it takes a family 20 years of income to buy a house. That is because they do not have those four measures effectively implemented.

We don’t hope to see the bubbles, nor do we hope to see the collapse of the market. This is in the interest of no one, not in the interest of the government, not developers, not the homeowners. So I think this is a very sacred responsibility of the government to accomplish that objective: six or seven years of family annual income to buy a house.

I think another objective of the government macro-control and management efforts is to strike a proper balance between the property market value with GDP. If the market value to GDP ratio is one to one I think our objective to buy a house with six or seven years of family income will be realized.

There are 300 million people in the United States and the average living area is 40 square meters, according to our statistics. You will find that if the average price is $2,600 per square meter and for a three-person family 120 square meters of living area it will cost a family $300,000 in total to buy that house. And if you look at the GDP of the United States in per capita terms, the per capita GDP is $50,000 each year. But 60% is the government revenues and corporate profits, so it means that the net cash income per head is $20,000. If you do some calculations for a three-person family the annual income is perhaps $50,000 or $60,000.

So if you check these figures you will see it takes these families six years to buy a house the total value of which is $300,000.

If we go back to the year 2007 we saw that year the GDP of the United States was roughly $13 trillion. But due to the later occurrence of sub-prime loan crisis, bubbles were created on the market. That same year the property market value was $17 trillion. So the property market value was 50% higher than the GDP size. In this case, you will see the creation of bubbles.

Now the prices have bottomed out and during the past years we saw the value of the property market went down another 30%. So based on statistics, the market value currently in the United States is $14 trillion and the GDP size is roughly around $14 trillion. I think the bubbles have been squeezed out. I think this balance should be properly maintained in the future.

Perhaps you will find that provincial mayors would like to provide their wisdom to the United States. I’m one of them.

WSJ: THERE IS NO PLACE IN THE UNITED STATES THAT LOOKS LIKE CHONGQING. I DON’T THINK MOST AMERICANS COULD IMAGINE A CITY LIKE CHONGQING. BUT ONE THING WE SEE COMING HERE IS THAT IT LOOKS VERY BUILT UP, IN FACT OVERBUILT. IT LOOKS LIKE THERE IS TOO MUCH SUPPLY. DOES THE GOVERNMENT KNOW WHAT IT IS DOING APPROVING AND IN SOME CASES FUNDING SO MANY APARTMENT BUILDINGS?

MAYOR HUANG: With these four measures in place we have already found the proper pace of the property market and the rational relationship between supply and demand.

Talking about the overall size of the (residential) construction, I think we always deal with five ratios. The first one is the per capita gross floor area is maintained below 40 square meters. (In rural parts of) Chongqing Municipality this figure is maintained below 30 square meters. (In areas) consisting of a population above 10 million, the total construction area needed will be 400 million square meters…We keep a very well measured pace. We do not hope to see the construction of all those well needed houses within a concentrated period say two or five years.

When it comes to office buildings there is a ratio that we bear in mind. For every 10,000 yuan of GDP the office building area needed is 0.5 square meter. And if we have 1 trillion yuan GDP it means that the office area needed will be 50 million square meters. If the GDP expands to 2 trillion yuan GDP it means that the office area needed will also be expanded to 100 million square meters.

I’m asked why there are prices of 20,000 yuan per square meter on the market, I’d like to say the reason is very simple…50% of the GDP is generated through the service industry. If you take the economic structure at large, the average price of all the factors, taking into consideration the average price on the market will be 20,000 yuan per square meter.

And there is also a ratio governing the commercial sector, for example the department stores in the shopping malls. It depends on the retail sales. We have annual retail sales of 300 billion yuan, so we need 30 million square meters of commercial house.

And our fifth ratio is about the renovation of shanty towns. For example, in various areas we have knocked down a big area of shabby houses. There is a ratio. Each 10,000 square meters of those shabby houses knocked down will be compensated by newly constructed areas of 15,000 square meters.

You’ll find that all these measures are done according to the market philosophies and we are very good at mathematics here. We always take into consideration the people’s demand, the economic capacity in building these housing products. We do not hope to see those newly built houses just left empty.

WSJ: WHAT DO YOU THINK FOREIGN ANALYSTS ARE MISUNDERSTANDING ABOUT CHINA’S PROPERTY MARKET POLICY? YOU TALK AS IF THE MARKET IS UNDER CONTROL. THERE IS A WIDESPREAD FEELING THAT THERE IS SOMETHING SERIOUSLY WRONG WITH THE PROPERTY MARKET. WHAT DO CRITICS NOT UNDERSTAND ABOUT YOUR POLICIES?

MAYOR HUANG: We cannot say that with all this evidence the foreign analysts are totally wrong. But sometimes they do not have the first-hand data on the local situation. For example they do not have the full access to the figures and data here in Chongqing’s market.

Perhaps they just look at the data of other Chinese cities, for example the city of Hangzhou. And by using those data to analyze the situation here in Chongqing of course they will come to a wrong conclusion. It is just like you could not blame Europe for the problems in the United States.

Since you asked me my assessment of the Chinese property market…as a whole whether I am as pessimistic as some foreign analysts in the Chinese market. Actually I think some assessments from foreign analysts come to an extreme. Indeed there are three major problems in the Chinese property market and we will correct these three problems and solve these problems in the future. But I don’t think the situation is as pessimistic as some foreign analysts said.

In the Tier 1 (Chinese) cities indeed there are problems of excessively high prices. In those cities you’ll also find a very high empty ratio of the property markets because many home buyers just come to buy the products out of speculative purposes. There are too many speculative purchases. In those Tier 1 cities, you’ll find that sometimes after the tendering process concluded the land price was even higher than the house-price itself. And when it comes to the financial regulation, I don’t think the authorities have come up with an accurate and appropriate leverage ratio. Indeed there are quite a lot of bubbles on the market.

In some big and medium cities in coastal China, due to these several factors — the high price, the high empty rate and the high land and inappropriate leverage ratio — there are indeed bubbles emerging on the market and basically something that we must probably address in the future.

I think there are three fundamentals that cannot be overlooked otherwise we will come to a wrong conclusion about the market prospects in the next 10 years. We have to understand that in some Tier 2 or  Tier 3 cities in inland China — for example Chongqing, Chengdu, Xian and Wuhan — I think the price is rather rational. There wasn’t too much bubble.

Currently the urbanization rate in China is 40%. In the next 10 to 20 years, the urbanization rate will continue to grow to 50% or even 60%. It means that farmers will be moving to the cities and becoming city residents. And during this process there is a very rapid increase in the demand of the property products. And this is rigid demand. For example each person needs on average 30 square meters of living area. If there an incoming of 100 million farmers into cities it means hundreds of millions of newly built housing areas are needed.

In the United States and Europe the situation is broadly different. The urbanization rate has been approaching 80%. The property market has been saturated. This is not the story in China. If you compare China with the United States and Europe you will find a lot of differences.

Secondly, presently China’s GDP per capita stands at $4,000. And in the next 10 years the per capita GDP will be increasing to $10,000 and in the next 20 years $20,000. It represents a huge demand for better homes, high-end apartments because during this process people would like to improve their housing conditions. So it means its huge and sustained demand in the next 10 years, or even to 20 years. When the per capita GDP comes to a stage ranging between $30,000 and $50,000 houses are no longer the priority for residents. But when we are moving up from the per capita GDP of $4,000 to $20,000, houses are the most preferred consumer goods by the residents. Thirdly I think the Chinese government is very good at macro control and regulation. It is also very good at sizing up the situation and correcting the deviation to the right path. Perhaps in the past the government was inexperienced because such restrictive measures were adopted on the real-estate market and restraining the access to the get the loans. But now we come to such an understanding that it will be fine only if we come up with an appropriate leverage ratio of the mortgage loan. And in the past, the tax was collected during the transaction process, now we are paying greater attention to collect tax from owning the products. The same is also true to regulating the land price. All in all we are summarizing the previous experience and trying to do a better job…

In any country, I think it is true that the real-estate industry is the pillar industry of the national economy. It is about the social well-being of the people and it creates social assets, or wealth. So I think I have the confidence to see the house development of the property market of China. So we should not be that pessimistic.

WSJ: WE VISITED SOCIAL HOUSING. THE APARTMENTS WERE WELL PRICED, ACCORDING TO RESIDENTS. BUT IN A PROJECT NEAR THE NEWLY CONSTRUCTED UNIVERSITY DISTRICT, THEY APPEARED TO BE HAVING TROUBLE FILLING IT UP. IN ANOTHER PROJECT CLOSER TO TOWN, RESIDENTS WHO HAD JUST MOVED IN WERE COMPLAINING ABOUT POORLY MADE HOUSES. IS THIS GOVERNMENT-LED EFFORT A BIT OUT OF SYNC WITH WHAT THE PEOPLE WANT?

MAYOR HUANG: Talking about the university district, we are indeed seeing an increasing number of students and ordinary residents moving in. So there is a growing demand for housing products there. Next year, we will extend the subway light rail line to that district. Now there has already been one highway linking the district with the downtown. Next year there will be another two. In terms of bus service, there are only a few nowadays but there will be more and more bus lines in the years to come. If you only look at the situation now because there is only a limited number of people moved in perhaps there are some problems. There are inadequacies we must make up.

But we need a process. If you only look at the complaints for those tenants who only lived there one day or one month or even one year, perhaps you are magnifying the problem. But on the government side if there were no measures taken to improve the situation in 10 or 20 years I can call this government irresponsible. I think in the next three to five years the expansion of the subways, the buses, the other services like the banks, movie theaters, schools, hospitals.

But not everything could be put there overnight. It is not a magic game. And if say in 10 years there is no improvement at all in the local situation I strongly encourage the residents to raise their complaints and I even encourage them to go to the streets to protest.

If you only look at the current problem, I think it is just like using a magnifying glass to check the quality of the skin of a beautiful lady. Here I could say in such a way, we have already done a very good job. If you look at the situation in the subway in the United States I think we are much better.

We have already put in place a comprehensive checking system to check whether these public housing sites are up to the demand of local residents. In about 20 public housing sites in Chongqing when the construction started we already required the builders to provide the services at the same time, at the same pace. Usually within a half year or year all of those service facilities will be on the ground.

We particularly focus on five areas in providing public services to the residents: the first is transportation convenience, for example whether the site will be served by public transportation means subways, buses. Second, the public facilities: gas, running water, electricity and sewage treatment facilities. Thirdly: schools, theaters and other cultural facilities. Fourthly, the shops and retail stores should be there.

Fifthly, we have to provide people employment opportunities in the surrounding areas. For example ,the sites should be located close to the factories and the job opportunities. We do not hope to see that people travel back and forth from their homes and workplaces like the rising and falling of sea waves. From the very beginning of the construction of these sites we have already taken in consideration all of these issues.

I was just talking about the government facilities. Families have different levels of demand. Those demands should be fulfilled by the market forces. I’m confident that after the sites are put to use in three or five years, this place will prosper because of the market forces.

–James T. Areddy; follow him on Twitter @jamestareddy

Reuters

Hong Kong’s former chief secretary Henry Tang Ying-yen appears at an election campaign rally in Hong Kong on Monday.

As the race for Hong Kong’s top post heats up, both frontrunners have this month launched their election campaigns with the kind of fanfare rarely seen in a place that doesn’t yet elect its leaders via the popular vote.

Henry Tang, Hong Kong’s former number two official, has enlisted support from a star-studded cast that includes Stephen Chow, a famous local comedian, and Canto-pop singer Leon Lai, along with other big names in local business and politics. These people, plus around a thousand other supporters, took part in a high-profile rally this week to back the 59 year-old son of a successful textiles businessman.

Meanwhile, Mr. Tang’s rival, former top government advisor Leung Chun-ying, has secured backing from many of the city’s powerful real estate tycoons, thanks to his background in the property business. In land-strapped Hong Kong, where property trumps all other assets, this support has clearly helped the 57-year-old surveyor: he remains ahead in key popularity polls by several percentage points in some polls.

While Messrs Tang and Leung have for years been groomed as contenders for the job as part of Beijing’s succession plans for the city, there remains no clear indication as to which candidate China prefers, leaving many pro-Beijing politicians unsure as to whom they should support.

In earlier chief executive elections, Beijing’s pick had been apparent even before the race officially started. It’s not the case this time around, even with the election just three months away, creating an atmosphere conducive for competition. But is this a sign that Hong Kong is moving closer to true democratic elections for its own leader? Perhaps.

But a more plausible explanation for the hitherto unseen level of excitement surrounding the race may be that China’s leaders themselves haven’t made up their minds.

Senior members of the Democratic Alliance for the Betterment and Progress of Hong Kong—the city’s main pro-Beijing political party—have appeared at rallies supporting both candidates. Embarrassed by the split within his camp, DAB’s chairman has banned members from attending certain events organized by any candidate.

The chief executive is chosen by a committee consisting largely of Beijing-backed representatives from different professional sectors, almost assuring that the winning candidate will have Beijing’s blessing. Amid public pressure, Beijing has promised universal suffrage in Hong Kong from 2017 onwards.

It appears, then, that as long as the Beijing officials remain undecided on their choice of Hong Kong’s next leader (or as long as they haven’t conveyed their preferences to their local cronies), the two candidates will have to keep the show going.

–Polly Hui

Gloucester Coal entered a trading halt prior to the beginning of trade Tuesday which will not be lifted until the commencement of trade Thursday. “The trading halt is necessary as Gloucester expects to make an announcement in connection with a possible change of control transaction, but is not yet in a position to make the announcement,” the statement read.

As Deal Journal Australia revealed last week, Yancoal’s board secretary and deputy general manager Zhang Baocai said the company was considering a reverse takeover to fulfil commitments to Australia’s regulators.

Volatile equity markets and Gloucester’s port capacity make a potential deal seem logical. Though Gloucester’s 64.5% majority shareholder Noble Group has made clear it prefers to own minority stakes, its shareholders rejected the sale of Gloucester to Macarthur Coal last April.

Further, Gloucester is carrying a lighter price tag having fallen 43.1% in the year to date to a market capitalization of A$1.4 billion.

Yanzhou gave the Foreign Investment Review Board and undertaking to list at least 30% of its Australian unit by the end of 2012 when acquiring Felix Resources two years ago, in a move aimed at soothing concerns from some politicians and commentators about the amount of state-backed Chinese investment in Australia’s resources sector.

Credit Suisse analyst Adrian Prendergast said potential merger was very positive.

See more on this story at Deal Journal Australia

James T. Areddy/The Wall Street Journal

The entrance to Shanghai’s D.P.R Korean Restaurant

North Korean restaurants in China offer a rare and somewhat surreal opportunity for outsiders to interact with citizens of the hermit kingdom.

Flag pins usually give away the fact that a Korean restaurant serves cuisine of the north, instead of the south. The authentic northerners wear the blue-and-red pins on their chests, keep their opinions focused on the food and offer minimal personality during the requisite dinner-time performance that accompanies a barbeque meal.

News Monday of the death of Kim Jong Il appeared to leave some of China’s North Korean restaurateurs in shock, though it was exhibited in different ways.

In the Shanghai district Hongqiao, the glass façade of the almost-clinically clean D.P.R Korean Restaurant displays intertwined Korean and Chinese flags, plus Santa Claus. But the mood Monday was far from jolly inside the suddenly and indefinitely closed establishment.

A lone woman in a black sweater – presumably the manager – sat sobbing at the table furthest from the door. With a vacant stare and warming her hands on a cup of tea, the woman’s eyes were puffy and red. The noise of would-be patrons brought four younger women out from a back room. All were wearing traditional choson-ot and likewise had moist eyes and sullen faces.

A question about Kim was met with a single word in Chinese from one of the young women: “Leave.”

At kilometer or so away at another Shanghai restaurant, Pyongyang KoRyo, it was all bustle. Staff wearing expressions as bright as their pink choson-ot smiled as they confirmed themselves to be North Korean while offering to seat guests.

But the elegant young woman in charge drew a firm line at questions, even as she bowed to her inquisitive new arrivals.

At the mention of Kim’s name, she reflexively dropped her gaze and lifted her finger to her lips with a motion – a demand – to hush.

“Shi jia-de,” she said in Mandarin: “It is fake.”

A gentle press for more explanation was met with a whispered but firm request to go. “This news has not been delivered to us. If you are going to ask about that please leave,” she said pointing to the winding stairway that leads to the street. The buzz of young waitresses – a half dozen of whom had earlier said they were from the north – suggested they indeed may not have been told.

Outside Pyongyang KoRyo after the lunch rush, two Korean men in track suits manned the entrance and declined to speak, shooing two young workers back inside when a reporter approached. Minutes later one of the men guided five or six of the waitresses, some wearing identical winter jackets, out of the restaurant and down the street, moments before arrival of a television crew.

Beijing-based users of the popular Twitter-like microblogging service Sina Weibo reported similar scenes at North Korean restaurants in the capital.

Weibo user He Jianye wrote that he was halfway through lunch at an unspecified North Korean restaurant in the city when the waitresses suddenly started to weep – “each crying up a storm” – and the restaurant was temporarily closed.

Another user, He Huafeng, said he went to Beijing’s Pyongyang Mudanfeng, where waitresses, some red-eyed and holding back tears, were wearing black aprons on top of their usual work outfits. “After we finished eating, we were told to go out the back door. The front door was shut with a sign saying ‘temporarily closed.”

– James T. Areddy. Follow him on Twitter @jamestareddy

Beijing New Picture Film Co.

Leading Chinese filmmaker Zhang Yimou is hoping to hit it big in China and globally with his new film, “The Flowers of the War” (金陵十三钗). The question is, can he do it?

Featuring Hollywood star Christian Bale, “The Flowers of the War” is China’s Academy Award entry for best foreign language film and tackles subject matter familiar within China: Japan’s brutal occupation of China’s southern city of Nanjing in 1937.

Chinese audiences may be drawn to the film for that reason, but it’s also sumptuously shot, rolling out Hollywood-like special effects with a plot that pulls no emotional punches.

The movie, which opens on Friday in China and a week later in the U.S., centers on a character named John Miller, played by Mr. Bale, who is a dissolute American mortician arrived in Nanjing to bury the town’s catholic priest. He finds salvation attempting to rescue an unlikely assortment of Chinese schoolgirls and local prostitutes sheltering in the cathedral from the horror of the Japanese occupation.

Mr. Zhang’s portrayal of the Japanese brutality leaves little to the imagination. Nuanced treatment of the Chinese characters is in stark contrast with portrayal of the Japanese as monochrome monsters. At one point, a Japanese soldier chasing the Chinese schoolgirls through the cathedral shouts: ‘Lieutenant come up here, we’ve got virgins!”

That might play well with the home crowd. But playing to nationalist sentiment in China risks alienating the wider foreign audience that Zhang is presumably angling for by placing an American at the center of the action. Chinese director Jiang Wen’s critically acclaimed “Devils on the Doorstep” was presented mainly in black and white, but still brought more nuanced color to its treatment of the Japanese occupation.

When asked if the story may come across as a nationalistic piece propping up China, Mr. Bale said he has never viewed it as such. “That would be a bit of a knee-jerk reaction,” Mr. Bale said. “This is a historical piece.”

Mr. Zhang’s film, which jumps nimbly between English, the Nanjing dialect of Chinese, and occasional barks of Japanese, clearly attempts to appeal to global audiences and is part of a global push from China to create a homegrown film industry that can rival Hollywood’s.

China’s film industry , ranking ninth in international box-office revenues, generated ticket sales totaling 10.17 billion yuan (roughly $1.5 billion) in 2010, up from 6.2 billion yuan in 2009. The U.S. topped the global market at $9.87 billion.

China wants to create production and distribution companies big enough to compete with U.S. film giants like Warner Bros. and Sony Pictures. The government believes that if China becomes a major player in the global film industry it will help to export the country’s culture and soften its image overseas.

With a budget nearing $100 million, “Flowers of War” is the most expensive Chinese movie ever made.

Mr. Bale said he’s not attempting to bridge the divide between the Chinese film market and America’s. “Leave it up to the businessmen to decide if China and Hollywood can become a single market in the future,” Mr. Bale said. “I just thought this would be a good opportunity.”

Mr. Zhang and Mr. Bale both say they are not focused on the business side of movie-making and are artists who are more focused on the craft of fine story-telling and the art of cinematography.

But with one of the most sensitive episodes in recent Chinese history at its center, and with a first screening taking place in a government building in the center of Beijing, it is the politics, rather than the cinematography, that will draw the most attention.

Zhang, the director who choreographed the opening ceremony of the Beijing Olympics, has already come under fire for cozying up to the communist regime and their partial view of China’s troubled history. “The Flowers of War” will likely do little to alter that reputation.

– Laurie Burkitt and Tom Orlik

Associated Press

China’s consumer price index rose 4.2% in November from a year earlier, sharply slower than a 5.5% year-to-year rise in October and the lowest inflation reading since September 2010. Analysts weigh in:

We believe the decline of inflation opens room for policy easing, and the cut in the bank reserve requirement ratio (RRR) on 30 November marks the beginning of a monetary policy easing cycle. We expect inflation to trend down further in the first half of 2012 to below 4% [year-on-year], and GDP growth should slow quickly to 7.5% in the first quarter…A 2009-style aggressive loosening would be difficult, as the government realizes the long term costs of fiscal stimulus. – Zhiwei Zhang and Wendy Chen, Nomura

The statistical effect resulting from last year’s high base has made a substantial contribution to the price correction. This, combined with possible further monetary easing in US and Europe, means that it might be still too early for China to claim complete victory over inflation. Nonetheless, sharp disinflation does free up some wiggle-room for monetary easing…Interest rates remain the big ticket item that markets are eyeing, but given that inflation remains lodged above deposit rates, we feel the likelihood of movement is low at present. That said, as CPI falls, real deposit rates edge closer to positive, and should begin to act as a draw for household deposits. Perversely, this should provide further downward pressure on the property market, as yield-seeking households err towards the banking sector rather than the sliding real estate sector. – Xianfang Ren and Alistair Thornton, IHS Global Insight

Due to holiday and other seasonal factors, we may see sizeable monthly price increases in the months ahead. The impact of electricity tariff increase will gradually kick in (we estimate the direct impact of 5% increase in end-user tariff increase at about 0.1%)…The November inflation and growth data will likely reinforce the shift of priorities from anti-inflation to supporting growth. We expect the policy tone to be changed in that direction during the Central Economic Work Conference to be held early next week. A couple more RRR cuts are likely by the Chinese New Year. – Shuang Ding, Minggao Shen, Daxue Wang and Serena Wang, Citigroup

Inflation risks in China have been significantly lowered due to the worsened global economic outlook and the ongoing downturn of the pork price cycle. We expect CPI inflation could average at 3.5% in 2012, with CPI readings possibly at 3% or even below in some months in mid-year…In our view, the chance for a very low inflation is very small, because China’s policies are flexible. If inflation is declining faster than projected, the government will likely seize the opportunity to carry out power tariff hikes and other price reforms, which would be difficult when inflation pressures are high. – Ting Lu, Xiaojia Zhi and Weijun Hu, Bank of America-Merrill Lynch

– compiled by Josh Chin and Aaron Back

Bloomberg News

A woman walks into a China Minsheng Banking Corp. branch in Shanghai, China, on Tuesday, Aug. 16, 2011.

China’s banks have had a good year. A very good year. So good, in fact, that it’s a little embarrassing.

That was the message from China Minsheng Banking Corp. President Hong Qi during a speech at the Global Entrepreneur Summit 2011 in Beijing Thursday, according to a transcript posted on the event organizer’s website (in Chinese).

“Particularly this year…China’s banking sector has outshone all others, with high profits and low levels of nonperforming loans,” Mr. Hong said, while noting that ordinary firms “are under a lot of pressure.”

“Companies’ profits are so low and banks’ profits are so high. Sometimes our profits are too high. And sometimes I personally feel a little embarrassed to announce them.”

Minsheng’s results have been more embarrassing than most. Its third quarter profit was up more than 80% from a year earlier, and profit from January to September was 65% higher the first nine months of last year.

But Minsheng, which did not immediately respond to requests to confirm the veracity of the transcript, is not the only bank to have a bumper 2011. The Industrial & Commercial Bank of China saw its third quarter profit rise 27% from a year earlier, and Agricultural Bank of China’s was up 40%. That’s at a time when companies across the breadth of China’s economy are struggling to access credit.

That’s not the fault of the banks. Rather, Beijing has put tight constraints on their ability to lend. The banks have benefited from the regime by being able to charge more for their loans.

Mr. Hong – who runs one of China’s few banks not controlled by the government – also called for the government to reduce its ownership stake in the banking sector.

“The banking sector has passed through a golden age…I feel now is the time that the state can slowly withdraw from the market…and allow funds from the general public to enter the banks,” he said, adding that the pull-back should be not just from the major banks but also the city commercial banks and village-level banks that are supported by lower levels of government.

“There’s lots of places the government could use the money…There’s not enough investment in new industries, not enough support for the modernization of agriculture.”

– Dinny McMahon, with contributions from Yoli Zhang

Associated Press

Microwaving low-grade coal so it can be burnt to produce electricity doesn’t sound very environmentally friendly.

But environmental consciousness is core to a plan by a small Massachusetts-based company, CoalTek Inc., now pushing into China.

CoalTek this week said in a statement that it had won government approval to build an industrial-scale facility deploying its microwave-coal technology in Inner Mongolia. The company estimated the project would cost more than $350 million and have a capacity of 10 million metric tons annually.

Zapping coal with microwaves dries it, the company says. That makes coal burn easier, raising the efficiency of producing electricity with it. Turning lower grade brown coal into something better – and more valuable – is environmentally friendly, the company says.

“Microwaving the coal allows China to extract more energy from the coal it mines,” a spokesman said by email. Approval of such a deal isn’t surprising in China.

The country has been a tear securing not only natural resources, but also fund newfangled technology associated with saving and producing energy, minerals and food.

China National Offshore Oil Corp., for instance, has invested in U.S. shale oil projects and Canadian oil sand. Air China Ltd. recently tested a biofuel-powered aircraft. In Guangzhou, a cigarette maker built a skyscraper that will be cooled by wind.

The microwave coal drying technology has used elsewhere, including with something called the DryCol Process developed in Australia (pdf).

CoalTek, which says its technology is proprietary, has operated a coal-microwaving facility in Kentucky since 2007.

In China, the plan is to zap low-grade lignite and sub-bituminous coal with microwaves to evaporate water inside it. The process could as much as double the value of low-grade coal to $60 per metric ton or $70 per ton, the company claims.

“After clearing the energy and environmental hurdles, CoalTek also had to demonstrate the project’s financial viability and overall positive economic impact on the Inner Mongolia Autonomous Region,” a CoalTek statement said, noting that all central and regional government approvals have been now been received.

Plans to enter China by venture capital-backed CoalTek were announced last year, though its local partner wasn’t known. The company says it has other partnerships in the country.

The deal in Inner Mongolia is a 50-50 venture with a Guangdong-based Yijian Group Co., a construction business with a range of interests. Cynergy-Global LLC advised the U.S. company.

Yang Shaolin, Managing Director of Yijian, described the CoalTek venture as the first Sino-U.S. venture in China’s clean coal industry. She noted clean coal was a primary goal of a U.S.-China Strategic Partnership Agreement signed almost two years ago by China’s president, Hu Jintao, and Barack Obama of the U.S.

– James T. Areddy. Follow him on Twitter @jamestareddy

National Football League

San Francisco 49ers cheerleaders helped promote the National Football League at an “NFL Experience” event held in Shanghai on Monday.

NOTE: This post has been changed since it was originally posted. See below.

The last time the National Football League tried to bring America’s favorite sport to China, in the form of an exhibition game, the league pulled out at the 11th hour to avoid the embarrassment of empty bleachers.

The league’s latest attempt to introduce American football to a Chinese audience was more modest: A traveling version of the “NFL Experience” interactive marketing event held Sunday in Shanghai gave locals – and plenty of Americans – a chance to punt, pass and kick like the pros.

Hall of Famer Tony Dorsett was on hand to offer tips to the city’s small contingent of local players, like members of the Shanghai Sea Dragons. “When you take a hand-off, you don’t look at the quarterback you just run where you’re going,” Mr. Dorsett instructed nine-year-old Enoch Hung. “You’ve got to get down low.”

The pee-wee Sea Dragon’s player Mr. Hung took the ball from Mr. Dorsett and made a quick dash down the line. The game is “cool,” Mr. Hung said a few minutes later, as his teammates huddled for autographs with the former Dallas Cowboys and Denver Broncos running back.

“You’ve got to create awareness,” 57-year-old Mr. Dorsett said Sunday, wearing jeans and a white No. 33 jersey. “China would be an important market for any sport because you have so many people here.”

American football isn’t a natural sell in China. The game is complex. Kids don’t play it. The term ‘football’ here equals European soccer. Tackling seems dangerous. And the NFL so far lacks an ambassador on the scale of basketball’s Yao Ming (though Chinese American Ed Wang’s promising career with the Buffalo Bills is a start).

In 2008, the NFL scheduled an exhibition game in Beijing between the New England Patriots and the Seattle Seahawks, but then canceled it. The fear was that television coverage of an empty stadium would do more damage to the league’s image than good.

Sunday’s festivities included non-tackling flag-football games. Venues offered chances to test passing, catching, kicking, running and jumping skills against benchmarks set by the pros. Four San Francisco 49ers cheerleaders were signing autographs. All five rows of the bleachers were full for a match-up of the two full-tackle club teams, the Shanghai Nighthawks and the Beijing Guardians (Shanghai won 35-to-7) on an Astroturf field next to Shanghai Stadium. The NFL said 3,500 people attended the events Sunday.

The NFL Experience, which has been featured on the sidelines of the Super Bowl in recent years, will move next to Guangzhou.

With its renewed China push, the NFL isn’t only aiming to recruit a fresh generation of players, but is also trying to draw viewers from the world’s most populous nation. It has a new deal on the Internet to stream games live on a Chinese service called PPTV.

“Giving everyday fans and families the chance to see the sport and touch the sport is the backbone of the NFL Experience,” said NFL China managing director Richard Young in a statement.

One local enthusiast attending Sunday’s events was Paul Song, who takes photos of the Sea Dragons where his nine-year-old son plays. Mr. Song said he likes how football inspires “teamwork” but also has room for “individual heroes too.”

Many of Sunday’s participants were Americans. Young Mr. Hung, in fact, is a recent transplant from New York to Shanghai. He said meeting Mr. Dorsett was fun, noting, “I heard about him from TV when he was going into the hall of fame.” (It was probably a re-run, as Mr. Dorsett was inducted in 1994.)

“My son is telling his friends how cool it is to play football,” said Mr. Hung’s mother Ling Wu. “It’s really hard to recruit kids (in China) to sports, especially contact sports.”

Mr. Dorsett didn’t sugar coat the risks. “Boys are boys,” he said. “Play is physical. It’s a demanding sport. Just like wrestling.”

“You can get hurt crossing the street…It almost happened to me couple times,” the football star said with a glance at the busy road next to the field.

CORRECTION: A previous version of this post incorrectly spelled Enoch Hung’s surname.

– James T. Areddy. Follow him on Twitter @jamestareddy

Asia Society

Alice Waters (far right) talks with guests at the dinner she hosted at the U.S. Embassy in Beijing.

As U.S. chef and food activist Alice Waters rolled out a four-course meal meant to inspire China to eat organic and sustainable foods, something other than pesticides was missing.

The founder of renowned Berkeley, Calif. restaurant Chez Panisse organized an elaborate dinner at the U.S. Embassy Wednesday night in Beijing as part of a move to spark a food revolution in China, helping Chinese consumers learn about eating organic foods that are in season and grown locally. But among the several hundred people to whom she dished out this meal—a carefully selected array of Beijing’s seasonal vegetables, followed by butternut squash tortellini, braised pork over mashed potatoes and apple strudel with ice cream—less than a third of the attendees were Chinese nationals.

A press representative of the U.S. Embassy, which was in charge of the guest list, said many more Chinese had been invited to the dinner than had attended. Declines flowed in the days before.

To be sure, there were some Chinese in attendance, many of whom were well-known. Ge You, one of China’s most famous actors, and Phoenix Television anchor Xu Gehui were both there.

Ms. Waters hoped to inspire these cultural icons. “China is at a critical turning point,” Ms. Waters said ahead of the dinner. Fast food restaurants are popping up on every corner, and the pressure to speed up the pace of life, eating on the go, is increasing, she said.

But at the dinner, the opening event of a four-day cultural forum sponsored by the Asia Society and Aspen Institute, little was uttered about eating foods free of chemicals and buying from nearby farms. Not a word of Chinese was said. Only a toast was offered as a tribute to a potential food movement in China. “Lift a glass of wine to the people taking care of the land,” Ms. Waters said.

A food revolution is only at best in its infancy in China, says Zhang Yinghui, who is one of China’s more prominent food activists and also attended the dinner. Chinese have been buying organic foods, but they’ve largely been buying out of fear after countless food scandals have threatened the health and lives of average citizens.

Ms. Zhang, while well-informed about China’s agricultural industry and green farming, is far less vocal than the organic and slow food backers in the West. “There’s less of push here because Chinese, after all, still care about food, even if it is under threat,” Ms. Zhang said.

“Chinese families still eat together at a table every night,” said Ms. Zhang.

There are some chefs around China who are contributing to a more conscious way of feeding people, sourcing their vegetables and meat locally. Dai Jianjiun, who runs his restaurant out of Hangzhou, an affluent city south of Shanghai, is one.

“Unfortunately, these kinds of restaurants are made available only to the wealthy and the government,” Ms Zhang said, adding that the growth of the organic industry in China has largely been propelled by this subset of the population.

Critics of the organic movement in West have made similar statements, which could have been applied to Ms. Waters’ dinner in China, where the U.S. Ambassador to China Gary Locke sat across from author Amy Tan on Wednesday, feasting on organic bread and carrots that had been plucked from a nearby farm only hours before.

– Laurie Burkitt. Follow her on Twitter @lburkitt

Bloomberg News

The city of Ordos in Inner Mongolia ranks 5th among Chinese cities in per capita GDP when its entire metropolitan population is taken into account and 2nd when only its urban districts are considered.

Businesses are jostling to capitalize on rising consumption in China’s second- and third-tier cities. The official data tells a tantalizing story of rising GDP per capita, increasing household wealth that is key to driving expansion in demand for consumer goods.

But businesses from Wal-Mart to Mattel have found that China’s urban wallet is more difficult to tap than they thought it would be. One possible explanation – confusing data that makes it difficult to make meaningful comparisons in wealth levels across cities, or even within the same city, over time.

Problems with local GDP data are well known. Exaggeration by local leaders, combined with double counting of output by firms with a presence in more than one province means local GDP data errs on the upside.

GDP per capita data at the city level may be even less reliable. Professor Kam Wing Chan, an expert on China’s urbanization at the University of Washington says inconsistencies in the way city boundaries and urban populations are defined means city-level calculations of per capita GDP need to be treated with extreme caution (pdf).

One way China’s urban population grows is by pushing out the administrative boundary of cities to include areas previously classified as rural. That means cities can include areas that still look decidedly rural, and where a large share of the population continue to be engaged in agricultural work. The urban population grows by administrative fiat, not by an actual move of the population from the country to the city.

As a result, it is the administrative decision on where city boundaries are drawn, as much as genuine differences in wealth levels, that determines the official city level GDP per capita figures.

Take the example of Chongqing. Prof. Chan notes that GDP per capita of its “city districts” in 2009 was 31,980 yuan ($5,037), barely 40% of the level in Shanghai. Glittering east coast Shanghai is undoubtedly richer than industrial inland Chongqing. But part of the difference reflects the inclusion of a much larger rural population inside Chongqing’s urban boundary than is the case with Shanghai.

The difficulties with the data can be overcome. Data on districts – the administrative level below cities – is also available. By excluding the rural districts, the data can be used to provide a more accurate picture of the size and wealth levels of the true urban population of China’s cities.

A deep dive into the district numbers yields some surprising insights. Shenzhen, Guangzhou and Shanghai are some of the richest cities in China based on city level per-capita GDP data. But data from the Economist Intelligence Unit shows that looking at the true urban area none of them even make it into the top ten.

Even the refined data needs to be treated with caution, however. Tom Miller, an expert on China’s urbanization at GaveKal Dragonomics, notes that a major natural resource or state owned enterprise located in a city can drive up GDP per capita without necessarily enriching the population. That’s the case with China’s richest city – Karamay in north western Xinjiang – which is a major oil production center.

As businesses continue to beat a path to consumers in China’s second-tier cities and below, getting to grips with the local numbers will become more important.

– Tom Orlik

For proof, take a look at the Chinese Internet, where photo-like renderings have been available since July.

If this was a design process managed by a global auto maker outside China, computer-generated renderings such as these would been tightly guarded. Yet, somehow the renderings — which show a “near final” exterior shape of the upcoming electric car — have been leaked and have found their way onto the Chinese web portal Sohu.

This week, two individuals close to the BYD-Daimler joint venture confirmed the images authenticity.

“It’s very disturbing how these renderings keep leaking out,” one of the knowledgeable individuals said. “By the time the car comes out, it won’t be new,” he added, saying he was resigned to “the reality of the Chinese marketplace.” The individuals said they have a good guess as to who leaked the renderings but declined to elaborate.

They said the renderings that appeared on sohu.com reflect the refinement the joint design team working at BYD’s headquarters in the southern China city of Shenzhen has done since the start of this year.

The individuals said the two companies will keep refining the design until the car is finally launched in a couple of years, but that refinement is mostly aimed at improving the “manufacturability” of the car to make it easier to produce and improve built-quality of the car.

“The design is still evolving, but the final shape of the car isn’t going to be radically different” from the leaked renderings from July, one of the two individuals said.

According to a spokesman at BYD–which is part-owned by Mid American Energy Holdings Co., a unit of Warren Buffett’s Berkshire Hathaway Inc.–BYD and Daimler are aiming to finish development of the all-electric car by the end of 2012 and make the car available for private buyers in China in 2013.

The two companies say they have no plans to market the car outside China.

Last year when designers from BYD and Daimler set out on the project to style their first car to be marketed jointly under a yet-to-be-named brand, the two companies experimented with an array of ideas, including some edgy and futuristic. But in the end, according to those individuals close to the German-Chinese joint venture, BYD and Daimler settled on more mainstream design that one said the two companies feel is “genuine.”

One designer of the joint design team said earlier this year that some people at Daimler were angling for more futuristic styling for the car, but BYD management pushed for a more non-offensive, mainstream look in an effort to appeal to more consumers.

According to the companies, they plan to use BYD’s lithium-ion battery technology, motors and other propulsion technology to power the car. Otherwise, the vehicle is going to be German-engineered, based on the “modified” vehicle underpinnings of the Mercedes-Benz B-class, a small, minivan-like car, the two knowledgeable individuals close to the joint venture said.

– Norihiko Shirouzu

For proof, take a look at the Chinese Internet, where photo-like renderings have been available since July.

If this was a design process managed by a global auto maker outside China, computer-generated renderings such as these would been tightly guarded. Yet, somehow the renderings — which show a “near final” exterior shape of the upcoming electric car — have been leaked and have found their way onto the Chinese web portal Sohu.

This week, two individuals close to the BYD-Daimler joint venture confirmed the images authenticity.

“It’s very disturbing how these renderings keep leaking out,” one of the knowledgeable individuals said. “By the time the car comes out, it won’t be new,” he added, saying he was resigned to “the reality of the Chinese marketplace.” The individuals said they have a good guess as to who leaked the renderings but declined to elaborate.

They said the renderings that appeared on sohu.com reflect the refinement the joint design team working at BYD’s headquarters in the southern China city of Shenzhen has done since the start of this year.

The individuals said the two companies will keep refining the design until the car is finally launched in a couple of years, but that refinement is mostly aimed at improving the “manufacturability” of the car to make it easier to produce and improve built-quality of the car.

“The design is still evolving, but the final shape of the car isn’t going to be radically different” from the leaked renderings from July, one of the two individuals said.

According to a spokesman at BYD–which is part-owned by Mid American Energy Holdings Co., a unit of Warren Buffett’s Berkshire Hathaway Inc.–BYD and Daimler are aiming to finish development of the all-electric car by the end of 2012 and make the car available for private buyers in China in 2013.

The two companies say they have no plans to market the car outside China.

Last year when designers from BYD and Daimler set out on the project to style their first car to be marketed jointly under a yet-to-be-named brand, the two companies experimented with an array of ideas, including some edgy and futuristic. But in the end, according to those individuals close to the German-Chinese joint venture, BYD and Daimler settled on more mainstream design that one said the two companies feel is “genuine.”

One designer of the joint design team said earlier this year that some people at Daimler were angling for more futuristic styling for the car, but BYD management pushed for a more non-offensive, mainstream look in an effort to appeal to more consumers.

According to the companies, they plan to use BYD’s lithium-ion battery technology, motors and other propulsion technology to power the car. Otherwise, the vehicle is going to be German-engineered, based on the “modified” vehicle underpinnings of the Mercedes-Benz B-class, a small, minivan-like car, the two knowledgeable individuals close to the joint venture said.

– Norihiko Shirouzu

Amelia’s Marketplace

Amelia Heaton-Renshaw decided to open a food business after relocating to Shanghai five years ago.

An engineer drives from England to Mongolia, stops in China, starts building racecars and abandons that career to make…strawberry jam?

For Amelia Heaton-Renshaw, that implausible yarn is the true story of her two-year-old Shanghai business, Amelia’s Marketplace, which bills itself as the city’s “jam and chutney hotline.”

She’s one of four expat foodies behind Pantry — a tiny storefront off West Nanjing Road, one of Shanghai’s busiest shopping streets. The shop is bringing hard-to-find treats to homesick Westerners and, they hope, a new audience of Chinese eaters. All of them discovered an entrepreneurial bent once they arrived in Shanghai.

“Baking isn’t my passion. Cookies are,” said Lexie Comstock, a 23-year-old American who sells chocolate-chip, oatmeal-raisin and other varieties from her shop, Strictly Cookies. “I think they are the absolute best dessert and should be part of everyone’s life.”

She arrived in Shanghai in August 2010 and opened the store two months later. “In America,” she said, “people are realistic, yes, but also pessimistic. Here, we have a more reckless attitude.”

Christine Asuncion, who runs Spread the Bagel, moved to Shanghai in 2008 to study Chinese, later working at an outsourcing firm. When she started her bagel operation, her oven could only accommodate two at a time.

“You should’ve seen the first bagels that came out of that oven,” she said. Now she churns out 200 a day from her one-bedroom apartment.

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Agence France-Presse/Getty Images

How healthy – or otherwise – is China’s economy? Like the proverbial blind men grasping an elephant, the answer likely depends on where you’re standing.

That seemed to be the message Monday when China Real Time put a property developer, a private equity executive, a former ambassador and newly minted resource firm director, and a senior local financial journalist on a panel in Beijing.

“The world is not coming to an end in China,” said Wu Yibing, president of Citic Private Equity Funds Management Co., one of China’s biggest local funds. According to Mr. Wu, the weighted average revenue for companies that Citic PE’s U.S. dollar fund has invested in was up 70% in the first half of the year from a year earlier. Even as the world was losing faith in China, profit for those companies was up 90% over the same period, he said.

Similarly, Citic PE has found that its investments in Chinese city commercial banks were in better shape than it had anticipated, he added. That could indicate China’s financial sector is holding up well despite worries that banks hold too many low-quality local government loans.

Back in January Citic PE forecast the two banks in which it had invested would have a nonperforming loan ratio of about 3% by the end of the first half. Instead their levels were about 1.5%, Mr. Wu said.

Property mogul Zhang Xin saw things differently – and claimed Mr. Wu’s numbers would likely tell a different story in the three months since June.

“In my 16 years as a developer this [has been] one of the most difficult times,” said Ms. Zhang, chief executive of Soho China, singing a not unfamiliar tune.

With the government gradually reducing the supply of credit since early last year in an effort to bring inflation under control and bring down housing prices, property developers are feeling the strain. But for Ms. Zhang, the problems go deeper.

“State-owned enterprises are the ones who get the liquidity and they’re the ones who are growing,” she said when the debate turned to the plight of China’s private sector, which has loaded up on high-interest rate loans from informal lenders and has been subject to a spate of recent bankruptcies in the entrepreneurial hub of Wenzhou. State firms “are not the most efficient. They’re not the ones who will drive China through the twenty-first century.”

“The allocation of capital has huge consequences,” said Ms. Zhang.

Those were fears echoed by Wang Shuo, managing editor of business-news company Caixin Media.

“I get the feeling that in the last 12 years nothing has changed in China’s banking system,” said Mr. Wang. China’s banks historically operated as a branch of the government, funneling capital where the central planners thought it was most needed. In the late 1990s the government started relieving the banks of the mountains of bad debt they’d accumulated in the hope of making them commercial-oriented.

Mr. Wang also said that the corruption and safety issues arising from China’s breakneck development of a high speed rail network had rendered the project “meaningless and useless.”

Former Australian Ambassador to China and current board member of Australian miner Fortescue Metals Geoff Raby had a different take. A long-time China bull Mr. Raby agreed with the proposition that what equates to a marginal misallocation of capital doesn’t really matter to China’s overall growth prospects.

While he clearly felt the recent sell-off of stocks on fears that China’s economy was slowing was hugely overblown, he had more time for concerns about Chinese corporate disclosures.

He said he didn’t think corporate transparency was any worse now than before, but “I don’t know why people believed [the numbers] so much in the past.”

That the Shanghai Stock Exchange’s benchmark index is trading at a fraction its 2007 peak is a sign that “people are finally starting to work it out.”

– Dinny McMahon

Bloomberg

Alibaba Group Chairman Jack Ma

Alibaba Group Holding Ltd.’s effort to raise fees at its Taobao Mall online store stirred opposition this week from some small vendors who pledged to disrupt its operations.

The protests–which the company now says have been contained–prompted a pained response online from Alibaba Chairman Jack Ma, who cited his anguish over the issue and described the protesters as “people playing the Nazi anthem, hurting the innocent by shouting ‘Eliminate all, destroy all.’”

Taobao Mall connects consumers in China with retailers ranging from small mom-and-pop operators to retail giants like Gap Inc. of the U.S. and the Uniqlo arm of Japan’s Fast Retailing Co.

Taobao said on Monday it will require retailers to pay up to five to 10 times the 6,000 yuan ($940) it currently levies to participate in the service, beginning at the end of the year, depending on the size of the retail operation. The payment, which the company says is refundable if the retailers achieve a certain sales volumes or high positive-feedback levels from customers, is meant to get them to pay more attention to customer service.

The move irked a number of small vendors who argue that it disproportionally hurts them. They began this week a campaign to disrupt the operations at Taobao Mall, also known as Tmall. Under plans they outlined in online forums, the vendors pledged to make purchases at the online stores of larger Taobao Mall members, then complain or ask for refunds. Such an effort would lower the consumer ratings of the stores, which could lead to suspension of operations under Taobao Mall rules.

Alibaba spokeswoman Florence Shih said Friday that some retailers, such as Uniqlo, took down listings earlier this week to avoid attacks, but all are back up and operations have returned to normal. “We’re working with them to make sure any negative effects have been negated,” she said.

She said the company reported the incidents to local police in the city of Hangzhou, where Alibaba is based, and said the company believes a number of the attackers are outsiders who have pestered the company in the past. “We welcome legitimate customers to get in touch with us with their concerns,” she said.

In a series of online posts, Mr. Ma this week criticized the protesters even as he described the tough environment Taobao Mall has faced. “Last night [I] heard those people playing the Nazi anthem, hurting the innocent by shouting ‘Eliminate all, destroy all,’” he wrote on Tuesday on his verified account on Sina Weibo, China’s popular Twitter-like microblogging service. He added, “Looking at the tears of my family members and listening to the tired and distressed voices of my colleagues, my heart is broken.”

“We help small businesses wholeheartedly because we understand that kind of pain,” he wrote on Wednesday. “But not everybody who does business will make money. Business is a serious discipline of learning.”

He added, “It’s normal that a company wants to make money. It’s not normal that a company doesn’t want to make money. Taobao has had nine years of not-normal time. For nine years, we have never examined Taobao’s income, never asked Taobao to make one cent of profit. Still not today!”

Ms. Shih said the comments speak for themselves. Alibaba Group and Taobao Mall are closely held companies and don’t publicly report earnings results.

Taobao Mall is China’s top business-to-consumer online retail site by market share, according to research firm Analysys International, contributing to Alibaba’s overall strong position in China’s online commerce area. Taobao Mall said it aims for the value of transactions on its site to reach 100 billion yuan this year and 200 billion yuan next year.

But Taobao Mall faces rising competition, including from Beijing Jingdong Century Trading Co., which operates No. 2 consumer retailer 360buy.com. Jingdong hopes to raise as much as $4 billion to $5 billion from an initial public offering in the first half of 2012, people familiar with the situation said last month.

Last month, Taobao Mall said it would team up with more than three dozen other online retailers, broadening its offerings to consumers.

–Carlos Tejada

Note: A previous version of this article misstated the fee structure.

Sotheby’s

This Ming-period vase sold for more than $21 million at auction in Hong Kong.

A 15th-century porcelain vase fetched 168.7 million Hong Kong dollars (US$21.6 million) after 10 minutes of tense bidding Wednesday in Hong Kong.

The vase was part of the Meiyintang collection owned by Swiss businessman Stephen Zuellig. An earlier Meiyintang sale by Sotheby’s produced mixed results, with many lots going unsold, but this week’s reaped HK$560 million, with more than three-quarters selling. (All final prices quoted include the buyer’s premium.)

Nicholas Chow, international head of Chinese ceramics and works of art at Sotheby’s, called the bidding “very aggressive.” Two phone buyers battled for the top lot, pushing the price far above pre-sale estimates of HK$120 million.

The bidding war captivated a packed, standing-room-only room, with onlookers craning their necks to watch the number rise on a big monitor at the front. The room erupted in applause once the hammer came down to declare the winner.

Mr. Chow, who was on the phone with the winning bidder, declined to share any information on the buyer.

The blue-and-white, Ming-period vase is intricately decorated, and Sotheby’s says that the only known comparable work is currently in the Palace Museum in Beijing. Other top lots included a rare Qing dynasty vase decorated with two blossoming peach trees, which sold for HK$90.3 million.

Continue reading at Scene Asia.

Agence France-Presse/Getty Images

Henry Tang, speaking to the Legislative Council in Hong Kong in 2010. Mr. Tang, largely believed to be a top contender for Hong Kong’s chief executive post, admitted “flaws” in his marital life to a Chinese-language magazine in an interview published Tuesday.

It’s a rare day when a Hong Kong official –- much less one who’s set to run for chief executive –- discusses his love life in public. So jaws dropped Tuesday when Hong Kong Chief Executive hopeful Henry Tang admitted “flaws” in his marital life. This could all add uncertainty in an otherwise clear race between two pro-Beijing cronies for the city’s top job in an election next March.

This revelation came on the heels of an exclusive interview in Chinese-language East Magazine published Tuesday with Mr. Tang and his wife of 27 years, in which she obliquely acknowledged reports of his extramarital affairs.  Reports about Mr. Tang’s love life and marriage have become more pronounced in recent days following his resignation as chief secretary in a highly expected move as he considers running for chief executive.

“I have had flaws in my personal life and I feel deeply remorseful of that,” the father of four said in a cryptic joint statement with his wife of 27 years. “I am very grateful for my wife’s understanding and forgiveness.” He affirmed her role as his “partner for life,” but didn’t elaborate on the flaws.

His wife, Lisa Tang, said in the statement that there were “difficult times” in their marriage, but said she admires her husband’s strengths more than his weaknesses. She noted she has long put such personal issues behind her.

Though Mr. Tang, 59 years old, has yet to formally announce his candidacy for chief executive, the latest news may dent his image as a loving father and devoted family man. His confession early on in the race could be seen as a pre-emptive move to avoid the scandal breaking at the height of his campaign.

The city’s leader is chosen by a 1,200-member committee consisting mainly of people backed by Chinese authorities, guaranteeing that the winner will have China’s blessing — as well as a complete lack of public participation among the city’s eligible voters.

Nonetheless, public opinion could likely play an important role in influencing Beijing’s decisions for the territory, given a population prone to frequent protests and demonstrations against unfavorable government policies. Hong Kongers have been promised the right to elect the top leader via a popular vote beginning in 2017.

Mr. Tang will be competing against Leung Chun-ying, a former cabinet member for current chief executive Donald Tsang.

Both Messrs. Tang and Leung have for years been seen as key contenders for the post as part of Beijing’s succession plans for the city, which reverted to Chinese rule from the U.K. in 1997. Other candidates are also likely to emerge, though many analysts expect the contest to be mainly between the two men.

To be sure, neither Mr. Tang nor Mr. Leung is particularly popular in Hong Kong, in large part because of their pro-Beijing ties and a lack of a solid track record, academics and lawmakers have said.

Mr. Tang was a member of the pro-business and pro-Beijing Liberal Party before joining the government in 2002, while Mr. Leung, 57, a surveyor by profession, has for years been a member of China’s top political advisory body. The two are close recent opinion polls.

As Beijing chooses Hong Kong’s next chief executive, its decision will likely rest in part on the positive public perception of the winning candidate. So even if the race isn’t a real election in its true democratic sense, Messrs. Tang and Leung will undoubtedly need to throw an all-out campaign to impress the boss.

–Chester Yung

Nelson Ching/Bloomberg News

Soho China Ltd.’s Sanlitun Soho commercial and residential development stands in Beijing, China, on Friday, Aug. 19, 2011.

Over the past few weeks, observers of China’s real estate industry have been treated to songs of woe from analysts, regulators, and Standard & Poor’s rating agency.

But the tune carries further when a Chinese real-estate rock star is singing the blues.

Zhang Xin, the chief executive officer of Soho China Ltd., said Wednesday that in her 17 years in the residential property business she hasn’t faced such a tough market. “This by far the most challenging year in terms of what you can sell,” Ms. Zhang told the Foreign Correspondents Club Shanghai.

Referring to the higher ends of the market, where Soho focuses, she said, “you’re seeing no transactions on the residential side.”

The 46-year-old Ms. Zhang is half of the glamour couple that leads Soho, a Beijing-based developer known for apartments and office buildings that look equal parts IKEA and Star Trek. The former investment banker’s partnership in Soho with husband Pan Shiyi has made them among the country’s wealthiest people.

Echoing complaints she and her husband have made on their Weibo accounts, Ms. Zhang pinned blame for the current slump on government policy, saying developers and buyers alike have no access to credit as Beijing takes aim at inflation and affordability. The industry is “so policy dictated,” Ms. Zhang said, “you spend more time guessing about policy than actually doing your own business.”

She expressed discomfort at Beijing’s efforts to build vast quantities of social housing – “contrary to what they’ve been doing for 15 years” – scoffing that some apartments will rent as low as 70 yuan per month, or about $11. From Ms. Zhang’s PowerPoint slides, she made clear a preference for prices like the 50,000 yuan per square meter that Soho fetched for apartments sold in August, attracting a mob of buyers.

Tight monetary and investment conditions won’t last in the Chinese property market, Ms. Zhang forecast. Pressed to predict when Chinese leaders will loosen their grip, she suggested a window of six months. “Very soon,” she said.

Ms. Zhang kept her commentary spicy Wednesday–there is a reason 2.4 million users track the messages she blasts to Weibo from her white Blackberry. She spoke of a fast-consolidating property market that is stoking “social unrest,” governed by usurious 50% interest rates from underground banks–and, in some cases, she said, inciting suicide.

Things aren’t all glum. Continued jack-hammering from the street outside the boutique hotel where Ms. Zhang spoke Wednesday attested to the fact that development hasn’t stopped in China.

And Soho keeps buying and building, especially in Shanghai these days.

Ms. Zhang showed a video of designs from architect Zaha Hadid with futuristic office buildings that roughly resemble the bullet trains that exit the railway station near where the development is just getting going, Shanghai’s Hongqiao Transportation Hub.

Soho, Ms. Zhang said, has spent 11.4 billion yuan in 2011 making property acquisitions in Shanghai, all of it commercial. She said the government restrictions on residential development make office buildings a safer bet.

The company branched into Shanghai from Beijing when, she said, Morgan Stanley unloaded some property in the east coast city in 2009. Soho is now looking at Guangzhou and Shenzhen, according to Ms. Zhang.

– James T. Areddy. Follow him on Twitter @jamestareddy

Nelson Ching/Bloomberg News

Soho China Ltd.’s Sanlitun Soho commercial and residential development stands in Beijing, China, on Friday, Aug. 19, 2011.

Over the past few weeks, observers of China’s real estate industry have been treated to songs of woe from analysts, regulators, and Standard & Poor’s rating agency.

But the tune carries further when a Chinese real-estate rock star is singing the blues.

Zhang Xin, the chief executive officer of Soho China Ltd., said Wednesday that in her 17 years in the residential property business she hasn’t faced such a tough market. “This by far the most challenging year in terms of what you can sell,” Ms. Zhang told the Foreign Correspondents Club Shanghai.

Referring to the higher ends of the market, where Soho focuses, she said, “you’re seeing no transactions on the residential side.”

The 46-year-old Ms. Zhang is half of the glamour couple that leads Soho, a Beijing-based developer known for apartments and office buildings that look equal parts IKEA and Star Trek. The former investment banker’s partnership in Soho with husband Pan Shiyi has made them among the country’s wealthiest people.

Echoing complaints she and her husband have made on their Weibo accounts, Ms. Zhang pinned blame for the current slump on government policy, saying developers and buyers alike have no access to credit as Beijing takes aim at inflation and affordability. The industry is “so policy dictated,” Ms. Zhang said, “you spend more time guessing about policy than actually doing your own business.”

She expressed discomfort at Beijing’s efforts to build vast quantities of social housing – “contrary to what they’ve been doing for 15 years” – scoffing that some apartments will rent as low as 70 yuan per month, or about $11. From Ms. Zhang’s PowerPoint slides, she made clear a preference for prices like the 50,000 yuan per square meter that Soho fetched for apartments sold in August, attracting a mob of buyers.

Tight monetary and investment conditions won’t last in the Chinese property market, Ms. Zhang forecast. Pressed to predict when Chinese leaders will loosen their grip, she suggested a window of six months. “Very soon,” she said.

Ms. Zhang kept her commentary spicy Wednesday–there is a reason 2.4 million users track the messages she blasts to Weibo from her white Blackberry. She spoke of a fast-consolidating property market that is stoking “social unrest,” governed by usurious 50% interest rates from underground banks–and, in some cases, she said, inciting suicide.

Things aren’t all glum. Continued jack-hammering from the street outside the boutique hotel where Ms. Zhang spoke Wednesday attested to the fact that development hasn’t stopped in China.

And Soho keeps buying and building, especially in Shanghai these days.

Ms. Zhang showed a video of designs from architect Zaha Hadid with futuristic office buildings that roughly resemble the bullet trains that exit the railway station near where the development is just getting going, Shanghai’s Hongqiao Transportation Hub.

Soho, Ms. Zhang said, has spent 11.4 billion yuan in 2011 making property acquisitions in Shanghai, all of it commercial. She said the government restrictions on residential development make office buildings a safer bet.

The company branched into Shanghai from Beijing when, she said, Morgan Stanley unloaded some property in the east coast city in 2009. Soho is now looking at Guangzhou and Shenzhen, according to Ms. Zhang.

– James T. Areddy. Follow him on Twitter @jamestareddy

Alexander F. Yuan/Associated Press

A woman poses for photos with an art installation of a huge renminbi banknote in Beijing, China.

Confused about whether controlling prices or supporting growth is the top priority for China’s government? You are in good company. A look at the recent statements of Premier Wen Jiabao suggests the confusion goes right to the top.

Back in June, the latest data showed the increase in consumer prices leveling off at 5.5% year-to-year. Mr. Wen declared early victory in the fight against inflation. Writing in an opinion piece in the Financial Times on June 23, he said: “China has made capping price rises the priority of macroeconomic regulation and introduced a host of targeted policies. These have worked. The overall price level is within a controllable range and is expected to drop steadily.”

That seemed a bit premature and a few days later on 26 June Mr. Wen was striking a more cautious note. He admitted that the government’s 4% target for the CPI might be out of reach, and said the government must “put stabilizing prices at the forefront.”

In July, the data for June showed consumer prices rising higher than expected, up 6.4% year-to-year. The premier remained on the inflation warpath, saying in a statement on July 12 that the “overall direction of policy is unchanged” and reiterating the commitment to cooling prices (in Chinese). But a few weeks is a long time in a tempestuous global economy, and in August the focus of attention shifted again. With the recovery in the U.S. and Europe looking fragile and financial markets in freefall, a statement from the State Council on August 9 struck a dovish tone.

In the statement, the State Council – which is chaired by Mr. Wen – focused on risks to the global recovery and omitted mention of price stability as the main priority of macro-economic policy (in Chinese). Despite inflation coming in at a three year high of 6.5% for July, the markets interpreted that omission as a sign the tightening cycle was drawing to a close.

The premier’s latest statement, which came in remarks published in the official Qiushi magazine at the beginning of September, suggested a shift back in the other direction. Mr. Wen said that the slowdown in growth had been the “appropriate” result of previous tightening measures and that stabilizing prices was still the government’s top priority (in Chinese).

But eagle eyed analysts noticed signs that the premier’s statement also revealed concern over the risks of excessive tightening, with a section focused on the risks facing the real economy from higher input costs, labor costs, electricity shortages and an appreciating yuan. It was important, Mr. Wen said, “to prevent the lagged impact of monetary policy and other factors having an excessive impact on the real economy in the period ahead.”

Paul Cavey, China economist at Macquarie, says that part of the reason for the mixed messages is genuine confusion amongst China’s leaders about what to do. “Pre-crisis China could achieve super-high rates of GDP without much inflation,” Mr. Cavey wrote in a note to clients. “But that period of Goldilocks now seems in the past. As a result, policymaking now involves trade-offs, and the mixed comments of Mr. Wen likely reflect a government grappling with just where to strike the balance between jobs and prices.”

Adding to the confusion; different interest groups within China’s own government have conflicting ideas on where the balance should be struck. Inflation hawks at the People’s Bank of China would dearly love to keep the focus on stabilizing prices. The pro-growth lobby – composed of China’s local government, industry, and real estate sector – would prefer it if Mr. Wen loosed the reigns.

Who will win the argument? The jury is still out. But the pro-growth camp might get a little support when inflation data for August is released this Friday. The consensus forecast of economists polled by Dow Jones is for the increase in consumer prices to ease down to 6.1% year-to year, from 6.5% in July – weakening the case for a continued focus on tightening.

– Tom Orlik

Christie’s

A phone bidder from China took home 300 bottles of Château Lafite-Rothschild, the most expensive single lot this year.

Bundled into a single lot, 300 bottles of Château Lafite-Rothschild sold over the weekend for $539,280 to an anonymous Chinese phone bidder at a Christie’s auction in Hong Kong, making it the most expensive single lot this year and boding well for a slew of autumn sales in the city.

While normal lots in top-tier wine auctions are typically made up of around a case, Lot 44 comprised 25 cases of Lafite from every year between 1981 and 2005, averaging around $1,800 a bottle. The entire two-day sale raised $7.6 million, with Burgundy’s Domaine de la Romanée-Conti, Moët & Chandon champagne from 1911, and Bordeaux’s ultra-rare 1982 Le Pin making up other top slots.

“It was an extraordinary Lafite collection, and the seller actually trades wine for a living,” said Christie’s Charles Curtis, head of wine for Asia, who estimated the vendor received a 20% premium by selling it as a multi-year collection, or vertical. “We had several bidders, and they were all from China, and they are just getting into wine.”

Continue reading on Scene

Eric Feferberg/Associated Press

When traveling in the countryside, Mr. Hu (right) apparently prefers more hirsute company than French President Nicolas Sarkozy (left).

President Hu Jintao might be greeted by unshaven villagers wearing old clothes when he travels to the countryside to share a meal with locals. If so, then everything went according to plan.

A recently released Wikileaks cable provides a rare and detailed glimpse into the degree of stage managing involved when Mr. Hu makes domestic visits, usually with state-run news agencies in tow. The cable describes a great deal of secrecy over Mr. Hu’s identity, keeping local officials in the dark until the president himself arrives, as well as measures that include keeping the temperature of home cooking oil low so he won’t be scalded while helping locals prepare a meal.

Mr. Hu’s domestic trips are regularly the top story on China’s national evening news. His meetings with farmers, factory workers and schoolchildren, among others, harken to the party’s populist roots and are a chance for the propaganda apparatus to soften Mr. Hu’s often rigid outward persona.

The cable is based on an interview between embassy staff and a former ranking local party official, whose poverty-stricken district in the northwestern province of Gansu Mr. Hu visited during the Chinese New Year holiday in 2007.

Ten days before Mr. Hu’s visit, an advance team from Beijing arrived to tell the local leader that a ranking party member would be visiting, though its members never revealed that Mr. Hu was the expected visitor. Then, three days before Mr. Hu would arrive, the advance team chose a farmhouse in one of the district’s villages where Mr. Hu would share a traditional New Year’s meal.

Officials finally chose the home of 70-year-old Li Cai, a longtime party member.

“The house appealed to the General Office advance team not only because it looked rustic…but Li himself sported a long beard that made him the epitome of a weathered Gansu farmer,” the cable read.

With the location chosen, officials ordered that nothing be changed. Party officials fear local cadres would try to spruce up a house too much, and the local officials ordered Mr. Li not to shave his long beard.

The cable goes on to describe the meal itself:

Word came from the General Office that “the visitor” wanted to make meat dumplings with the family…even though it was not the local custom. Another part of the meal, a genuine local tradition of frying twisted dough sticks in a wok of boiling oil, presented the serious risk of hot oil splashing on Hu Jintao. The solution…was to heat the oil to 70 percent of the normal temperature and give Hu an extra long set of chopsticks. When it came time to eat, Hu’s own undercooked portion was set aside in favor of properly fried dough sticks that had been prepared earlier.

Stage managing the trips of top political leaders isn’t unique to the Chinese. There was no shortage of photo-ops during Vice President Joe Biden’s recent trip to the country, for example. In one case, shortly after Mr. Biden finished a private tea in the city of Dujiangyan in the southwestern province of Sichuan with his Chinese counterpart, Vice President Xi Jinping, the two men chatted casually (at least as casually as the vice presidents of China and the U.S. are capable) on the city’s idyllic South Bridge. More than 100 journalists, State Department and Foreign Ministry officials looked on, not to mention a small army of U.S. Secret Service.

So, what to do when a scripted moment goes astray? The cable describes a moment from Mr. Hu’s 2007 visit to Gansu, when the young granddaughter of wispy-bearded Mr. Li refused the local potato variety Mr. Hu offered her. The child complained she was tired of eating them.

“The family eventually cajoled the girl into accepting,” the cable read. A shot of Mr. Hu and the young girl together sharing the local specialty was later broadcast on the national evening news.

(CCTV footage of Mr. Hu’s visit to the Li household can be viewed here, starting at around the 5:30 mark)

– Brian Spegele. Follow him on Twitter @bspegele.

Reuters

China’s Vice Premier Li Keqiang (C) gestures to (from L-R) Azerbaijan’s Vice Premier Abid Sharifov, Pakistan’s President Asif Ali Zardari, Kyrgyzstan’s President Roza Otunbayeva and Kazakhstan’s Deputy Prime Minister Aset Isekeshev during the opening ceremony of the China-Eurasia Expo in Urumqi, Xinjiang Uygur Autonomous Region September 1, 2011.

China recently took another step in presenting Li Keqiang, the country’s presumptive next premier, as a global statesman, touting a meeting with Pakistani President and close ally Asif Ali Zardari and leaders of other central Asian countries, which China has courted in recent years for their geostrategic positioning as well as abundant energy resources.

The meetings in the far western city of Urumqi, capital of the restive Xinjiang Uyghur Autonomous Region, were part of the China-Eurasia Expo, a trade fair that received substantial coverage in the state-run press last week. Mr. Li’s meetings in Xinjiang came a week after a high-profile visit to Hong Kong by the vice premier, an effort to thrust Mr. Li into the global spotlight, analysts said. The Chinese Internet lit up after Mr. Li, in an unusual move for a ranking Chinese leader, broke into English at the end of a speech he was delivering at The University of Hong Kong.

Mr. Li’s attendance at the Xinjiang expo and his meeting with Mr. Zardari could be a signal of Beijing’s support for Mr. Li at a time when some voices in government – particularly those in the finance industry – have questioned his credentials. Mr. Li, who as premier would be a leading voice on China’s economy, promoted bolstering trade ties with neighboring central Asian states while at the same time focusing on domestic development in largely impoverished regions like Xinjiang, a key theme of the current 12th Five-Year Plan.

The trade fair appeared to be the first chance for the two leaders to meet since Mr. Li emerged as the frontrunner for the Chinese premiership based on state media reports of Mr. Li’s official appearances in recent years. Pakistan is among China’s closest allies, and strong military ties between the countries have long worried Washington.

The trade fair in Urumqi, which kicked off on Thursday and concludes Monday, brings together two of the challenges facing China’s future leaders: boosting ties with central Asian neighbors, whose reserves of natural gas and other resources are critical to fueling China’s growing economy; and curbing domestic unrest among ethnic minorities in places like Xinjiang. Mr. Li said in a speech Thursday that Xinjiang would play a role in developing China’s interior and western border regions, where development has lagged significantly behind China’s increasingly wealthy east.

Outgoing President Hu Jintao and Premier Wen Jiabao have struggled to quell ethnic unrest across western China in recent years. The government has promoted investment in places like Xinjiang, Tibet and Inner Mongolia, though observers say much of that economic development has benefited Han implants migrants to the region, exacerbating social and economic disparities between minority and Han ethnic groups. Mr. Li said Thursday that China must continue “the theme of developing common prosperity,” according to the Communist Party mouthpiece People’s Daily newspaper.

Mr. Zardari said Thursday that Pakistan and China need to cooperate more closely to fight terrorism. Chinese police claimed earlier in the week they had thwarted several attacks planned during the trade fair by separatists in the region, who authorities say are training at overseas bases. Still, most analysts don’t believe Uyghur separatists are linked to global terror networks such as al-Qaeda.

– Brian Spegele. Follow him on Twitter @bspegele.

Suspicions about the death of a government official in a rural Chinese county have only grown since local authorities ruled the death a suicide.

While Chinese government officials are no strangers to suicide, several details surrounding the death of Xie Yexin, an anti-corruption official working in Gong’an County in central China’s Hubei Province make it seem rather unlikely that he took his own life.

For one, Mr. Xie, who was found dead in his office on Saturday, appears to have been stabbed. Eleven times.

Police in the Hubei city of Jingzhou came to the conclusion that he had committed suicide after a “meticulous investigation” involving multiple departments, the Beijing News reported Tuesday, citing a statement posted on the Gong’an County website.

Mr. Xie, wounded in the chest, neck, abdomen and both wrists, died from the rupture of a major vein near the heart, the newspaper quoted a Jingzhou public security official as saying.

The Gong’an County website was inaccessible Wednesday afternoon. A woman in the county propaganda office who would not give her name confirmed Wednesday that Mr. Xie’s death had been ruled a suicide and that authorities had found 11 wounds on his body, but would not answer any further questions on the case.

“We think he committed suicide. It is not a criminal case and we have no obligation to investigate,” Wang Jianping, a vice director of the Gong’an Security Bureau, was quoted as saying in a report on the English website of the Global Times.

Police found a knife (wrapped in tissue paper) on the floor of Mr. Xie’s office that matched the description of a knife missing from his home, the Global Times said, citing the Gong’an County statement.

Mr. Xie’s family members have refused to accept the verdict, arguing in interviews with various newspapers that he was in a good mood the day of his death and had no obvious reason to end his life. They’ve also questioned why someone who was going to stab himself to death would find it necessary to wrap the knife in tissue paper, or to cut himself so many times.

“If it was a suicide, why would there be such a long cut on his neck and also a wound on his wrist?” one unidentified family member was quoted by the Beijing Post as asking.

Mr. Xie had previously been part of a corruption investigation involving Gong’an County’s deputy Party secretary but was taken off the case a month before his death, the Global Times said.

The suicide verdict — the No. 3 topic on Chinese search engine Baidu Wednesday — was widely mocked online. Among the thousands of comments about the news on the Net Ease news portal, almost none appeared to take the verdict at face value.

“Very harmonious,” commented one Net Ease reader from Liaoning Province, while another reader from Guangdong Province wrote: “If this counts as suicide, there’s going to be a lot of ‘suicides’ in the future.”

Users of popular Twitter-like microblogging service Sina Weibo were likewise disbelieving.

“What kind of suicide is this? Has to be a Guinness record,” remarked a user writing under the name Sanfu Liangchao.

“If what the family members say is true, then [the authorities] are spouting nonsense while averting their eyes,” wrote Querytown. “After this, who will be willing to do anti-corruption work?”

– Josh Chin. Follow him on Twitter @joshchin

Associated Press

Lady Gaga accepts a personalized lantern while visiting Taipei in July.

China’s Communist Party, it seems, isn’t into threesomes — or Lady Gaga.

China’s Ministry of Culture last week released a list of 100 banned songs (in Chinese), its third such list.

Making unsurprising appearances on the list are recent hits like Katy Perry’s “Last Friday Night (T.G.I.F.),” an homage to a drunken night of partying featuring “skinny dipping in the dark” and a “ménage à trois.” Also featured are pop sensation Lady Gaga’s “Judas,” a song that pays tribute to the biblical apostle who betrayed Jesus and has also offended its fair share of those in the West, and “Hair,” in which she sings of hoping to “die living just as free as my hair,” a concept that doesn’t exactly dovetail which Beijing’s emphasis on social harmony.

But less obvious are Owl City’s syrupy “Honey and the Bee” (“I fell in love with you, like bees to honey”), a slew of seemingly innocuous songs by the U.K.’s Take That, or the 1999 Backstreet Boys hit “I Want It That Way.” Perhaps the government just got wind of the boy band’s ballad a few months ago, when a video was posted to YouTube featuring a trio singing it in Chinese.

Others who made the list include Britney Spears, Beyonce, Canada’s Simple Plan as well as several Taiwanese, Japanese, Hong Kong and Malaysian artists.

Chinese authorities, who frequently censor content they consider politically sensitive or illegal, didn’t offer specific reasons for banning the individual songs, saying only that the 100 tunes were “not in accordance with the Interim Provisions on Administration of Internet Culture and other regulations” and that they “disrupt the online music market order and endanger national cultural security.”

Lady Gaga had the most banned tracks of any artist on the list with six from her latest album, “Born This Way” — which topped Billboard’s charts with more than 1.1 million copies sold in its debut week. But perhaps the culture ministry is softening: Gaga’s hit single from the album of the same name was not among those banned, despite lyrics mentioning a topic that remains largely taboo in China: “No matter gay, straight, or bi, lesbian, transgendered life, I’m on the right track baby, I was born to survive.”

–Brittany Hite, with contributions from Kersten Zhang

China Railway Signal & Communication Corp. on Tuesday identified the deceased executive as Ma Cheng, its general manager and deputy Communist Party Secretary. In a brief statement, the company said he died Monday “during a safety inspection in Shenzhen.”

A spokesman for the company couldn’t be reached for comment.

While it is unclear whether Mr. Ma’s death is directly related to his company’s business, fallout from a July 23 high-speed rail crash in China continues to accumulate. The government said this week that it has concluded a preliminary assessment of what went wrong to cause a collision of two fast trains that killed 40 people, and that it will make public the results by mid-September.

“The technical report of the accident and an expert panel report on the accident’s direct cause have been completed,” according to Huang Yi, spokesman of the State Administration of Work Safety. “The next stage will be to identify those who are responsible for the crash.”

Mr. Huang, speaking Monday during an online interview with the government news agency Xinhua, said preliminary investigations revealed serious design flaws in railway-signaling equipment, as well as poor emergency-response and safety-management loopholes. He reiterated a position voiced by inspectors earlier that the accident should have been avoided.

Hours after the July 23 crash, government inspectors began pointing to flawed signaling as the explanation for why a speeding train on a two-year-old track rammed the tail of a nearly stationary one outside the eastern city Wenzhou. But the government hasn’t been more specific than saying a signal light flashing green should have been switched to red. Officials have said lightning may have played a part in the accident.

A handful of railway officials have been dismissed from their posts.

China Railway Signal, known as CRSC, is the country’s dominant producer of the signaling equipment that allows dispatchers to organize rail and subway carriages. One of its subsidiaries is the only company to so far accept blame for a role in the Wenzhou accident.

The China Railway Signal unit, Beijing National Railway Research & Design Institute of Signal & Communication, on July 28 issued a statement expressing “deep” sorrow about the loss of state property and individual lives. “We will shoulder our responsibility, accept the deserved punishment,” the institute said, without elaboration.

China Railway Signal, known as CRSC, has a broad footprint in railway signaling, with numerous factories, research arms and engineering facilities. Its subsidiary ventures operate in at least 20 countries including Zambia, Iran and North Korea.

The dead man, Mr. Ma, is closely identified with China’s high-speed signal system, a homegrown version of a European standard. In April, Mr. Ma was honored as one of China’s top innovators in a ceremony held at the World Metro Rail Summit in Beijing, which recognized the company’s FZL200 rail signaling system.

Last September, Mr. Ma sounded triumphant in announcing plans to install control systems on a Beijing-Shanghai high-speed line. “We are going to improve ourselves through the construction of Beijing-Shanghai high speed rail, in terms of our key controlling technology, systems integration, equipment production, construction and installation, aiming at lifting CRSC up to the world’s first class high-tech group on railway signaling and communication,” he said, according to the company’s website.

In addition to holding a senior position at the government-owned group company, Mr. Ma last year became chairman of a corporate entity that was preparing to make a stock market listing.

Chinese media reports Tuesday said he collapsed as government investigators were probing for details of the July 23 crash. The reports carried no suggestion of foul play.

– James T. Areddy, with contributions from Yang Jie

China Daily/Reuters

Outbreaks of violence during international basketball games involving Chinese players typically send China’s vibrant sports media rushing to outdo each other with one frothy commentary after another. Not so with the latest dust-up.

A “goodwill” contest at the Beijing Olympic Basketball Stadium between the Shanghai Bayi Rockets of the Chinese Basketball Association and the Georgetown University Hoyas ended abruptly Thursday night after a fight broke out in the fourth quarter. Benches cleared. Punches were thrown. Chairs flew through the air at high velocity.

The Georgetown players eventually walked off the court under a storm of boos and thrown water bottles.

The hardcourt melee follows a similar benches-clearing brawl last year in the Chinese city of Xuchang between the Chinese and Brazilian national teams that captured worldwide attention and led to spirited debate among Chinese sports commentators — a number of whom defended the Chinese team’s right to fight. Chinese media have been noticeably tamer this time around, recounting events so far without offering commentary.

China’s Internet censors likewise appear to be playing it safe. Amateur footage of the fight posted to Chinese video sites Thursday night was taken down Friday (though copies still remain available on YouTube .

A look at the teams involved and the circumstances surrounding the match suggests why:

-The Bayi Rockets, one of the most celebrated teams in the Chinese professional league, has ties to the People’s Liberation Army (the team’s name, which means “August First,” refers to the founding of the PLA on August 1, 1927).

-The Hoyas, who play less than a mile and a half from the White House in the Verizon Center, are the closest thing the U.S. government has to a home team in the NCAA.

-The fight occurred during Vice President Joe Biden’s visit to Beijing for talks with Chinese leaders and came one night after Mr. Biden watched the Hoyas play against another Chinese professional team.

The cause of the fight wasn’t immediately clear, though Washington Post reporter Gene Wang, who was watching the game, notes that contest had been physical from the beginning, with referees calling 28 fouls on Georgetown and 11 on Bayi by halftime. The two teams were tied at the time of the fight, despite the lopsided foul count.

From Mr. Wang’s account:

There were an estimated half-dozen individual altercations on the court, and eventually some Chinese onlookers joined the fracas, including one wielding a stanchion. As the brawl spilled beyond the baseline, an unidentified Bayi player pushed Georgetown’s Aaron Bowen through a partition to the ground before repeatedly punching the sophomore guard while sitting on his chest.

In one of the few Chinese reports to venture into commentary, the New Beijing News seemed to blame the officiating, quoting an anonymous witness and an unidentified player as saying the officials failed to control the game. “I’ve never seen them before,” the paper quoted the player as saying.

Both Georgetown and the Chinese government are likewise playing things safe.

“We sincerely regret that this situation occurred,” Hoyas coach John Thompson said in a statement posted to the Georgetown University website. “We remain grateful for the opportunity our student-athletes are having to engage in a sport they love here in China, while strengthening their understanding of a nation we respect and admire at Georgetown University.”

“We believe the organizers of the matches and the two teams will address the issue properly, the sportsmanship and people-to-people friendship the matches are meant to represent will prevail,” Wang Baodong, a spokesman for the Chinese Embassy in Washington D.C., told the Washington Post in an e-mail.

Richard Buangan, spokesman for the U.S. Embassy in Beijing, called the fight “unfortunate,” adding “We look to these types of exchanges to promote good sportsmanship and strengthen our people-to-people contact with China.”

Calls to a spokesman for the Chinese Basketball Association went unanswered Friday.

Users of the popular Twitter-like microblogging service Sina Weibo, on the other hand, had plenty to say. While some expressed approval of the Chinese players’ fighting technique, many others felt Bayi had ultimately brought shame on the country.

“This may have recalled the brave hand-to-hand combat of the Korean War and China’s players may fight well, but this is still a loss of face,” wrote a Weibo user going by the name of Liu Zhe.

“Kobe, better you don’t come, otherwise you might be killed,” wrote Weibo user Hui Bin Water, in reference to rumors that NBA star Kobe Bryant has considered coming to play in China this year because of the current NBA lockout.

One popular joke circulating on the service speculated the Bayi players were jealous of the friendly reception Mr. Biden received during a highly publicized lunch at a local fried liver restaurant on Thursday. “So you think it’s OK for you to get a better deal on fried liver than us?” wrote Eleven_711. “Here’s your liver!!! Eat this!!!”

The fracas doesn’t bode well for Bayi, which already has a reputation for fighting (“When Bayi can’t put up shots, they put up their fists instead,” Chinese national team member Zhu Fangyu once famously said). But with Chinese officials and foreign journalists engaging in a tussle in the Great Hall of the People during a statement by Mr. Biden on Thursday, they’re not alone in adding a physical element to the diplomatic back-and-forth.

– Josh Chin, with contributions from Yoli Zhang. Follow Josh on Twitter @joshchin

Adrian Bradshaw/European Pressphoto Agency

The Palace Museum

A string of recent stories in the Chinese press have sparked a new wave of public scrutiny of Beijing’s Palace Museum, home to a number of relics considered precious in China, further complicating a contentious debate around whether or not the many artifacts that have been taken or smuggled out of the country should be returned.

An article by Chinese business magazine Caixin this week alleging that the Palace Museum, better known outside China as the Forbidden City, covered up an accident involving the immersion of a Qing Dynasty wooden screen in water—which the museum denies— has stirred a new round of controversy less than two weeks after museum officials acknowledged that a 1,000-year-old porcelain plate was damaged by mistake while being examined.

When asked about the wooden screen, a public relations official at the Palace Museum told The Wall Street Journal Thursday that “we have confirmed that the screen is now at our cultural relic technology department for regular restoration and dust abatement, and no damage has been made as far as we know.”

Still, the reports prompted doubts of the government’s ability to protect relics from China’s past, many of which are centuries old. “When I look at those shabby doors in the Forbidden City, I feel it’s lucky that there are Chinese items in the Louvre and the British Museum. Though they don’t belong to us, at least they are still there,” wrote Qing Xin Ya Xuan, a user of Twitter-like microblogging website, Sina Weibo.

The British Museum, which has a large collection of Chinese artifacts, has been accused by Chinese state media of being one of the world leaders in acquisitions of artifacts looted from Beijing’s Summer Palace.

“Maybe they’ve covered up many similar mistakes, who knows?” wrote Sina Weibo user Qing Qi Lu Luo. “Relics preserved in the Palace Museum don’t just belong to the museum, but to all Chinese people,” wrote another, Chufeng72. “It embodies too much historical heritage and culture,” the user wrote, adding that those responsible for damaging such artifacts should be severely punished.

The Palace Museum “oversees national treasures, but who oversees them?” wrote a user called Royal Dudu. “Could it be that our future generations will have to learn our history from pictures?” wrote one called Mei’er_ling. The relics “managed to outlast time, but were damaged by pigs,” said another, Shanwei People in Shantou.

The Palace Museum was founded in 1925 and receives millions of visitors a year, mostly from within China. Though it is said to house more than a million cultural relics, a vast number of items are scattered in museums across the globe – including in the National Palace Museum in Taiwan — which Chinese officials and collectors are keen to have returned to China.

The Chinese government has accused auction houses of selling questionable objects, including a controversy in 2000 over the auction of bronze animal heads looted by British and French forces in the nineteenth century. Some of bronze heads were eventually purchased by state-owned Poly Group and have been repatriated. In 2009, Chinese auction house founder Cai Mingchao bid $40 million for two of the bronze sculptures and refused to pay for them, saying it was a gesture to express his belief that the works should be returned to China for free. The art dealer was praised by some at the time as a national hero.

The latest controversy seems likely to lend ammunition to critics who argue the missing relics are better off staying where they are, though some feel that outrage over the treatment of cultural objects is an overreaction. Microblog user Skinny Waist wrote: “For people in this country, there is no security for our livelihood or survival, why make a big deal over some stupid broken plate?”

– Loretta Chao, with contributions from Yoli Zhang and Sue Feng