Associated Press

By Andrew Erickson and Gabe Collins

As policymakers in Washington focus on China’s expanding presence in Africa and growing assertiveness in the South China Sea and Indian Ocean region, Danish diplomatic assistance is opening the gate for China to establish a strategic foothold in the Arctic.

Denmark has made a strategic decision to prioritize its economic relationship with China and is now becoming the key gateway for Beijing’s commercial and strategic entrée into the Arctic. Denmark advocates giving China a seat at the Arctic policy table. Friis Arne Peterson, the Danish ambassador to China, stated in October that China has “natural and legitimate economic and scientific interests in the Arctic.” Copenhagen likewise supports giving China permanent membership on the Arctic Council, the eight-nation forum that includes the five Arctic Ocean coastal states (the U.S., Canada, Denmark, Norway and Russia) as well as Sweden, Iceland and Finland.

Greenland’s substantial deposits of minerals including rare earths, uranium, iron ore, lead, zinc, petroleum, and gemstones make the Arctic island a key bargaining chip as Denmark cultivates Beijing. Copenhagen administers Greenland’s foreign policy and will likely dangle the island’s rich geological potential in front of Beijing as it works to bolster the China-Denmark trade relationship. Indeed, Greenland’s minister for minerals, industry, and labor traveled to China for a trade mission in November that included participation in a major mining and minerals trade show in Tianjin.

Danish exports to China rose 17% and Chinese exports to Denmark rose 25% in 2010, according to figures provided by the Danish embassy in Beijing. Yet Danish exports to China were worth just US$2.6 billion and Chinese exports to Denmark amounted to US$6.9 billion, a small fraction of the volumes traded between China and its primary trade partners. The minerals that lie under Greenland’s snow are the real prize, worth far more in both monetary and strategic terms to China than the imported goods or export market Denmark itself can provide.

Danish diplomacy is literally following the money as some of the country’s policy elites turn away from the U.S. Copenhagen’s largest embassy is in Beijing, and is twice the size of its embassy in Washington. Denmark’s ploy to pull China closer is likely to work: From Beijing’s perspective, having Chinese companies buy several billion dollars per year worth of pharmaceuticals and machinery and doing container shipping business with Maersk is well worth it to gain access to Arctic negotiating tables and Greenland’s minerals.

Greenland is the best geographic entry point for Chinese entities interested in Arctic mineral resources because its government lacks the ability to develop mineral resources independently and because its Danish overseer will likely actively support Chinese investment in the island’s resources. Companies from Russia, the U.S., Canada and Norway already dominate the development of oil, gas and other natural resources within their home countries’ respective territorial zones.

With this politically and geologically favorable backdrop, Greenland’s high mineral production potential will likely attract Chinese interest despite the risk and uncertainty inherent in developing a new mineral source. London Mining aims to produce 15 million tonnes per year of high grade iron ore pellets by 2015 at its Isua project, which includes investment from Sinosteel and China Communications Construction Corp. Greenland Minerals and Energy claims its Kvanefjeld deposit could produce 20% of the global rare earth supply and large amounts of uranium with first production in 2016 (pdf). Kvanefjeld’s potential to influence global prices would make it a project of strategic interest to Chinese companies like Inner Mongolia Baotou Steel Rare Earth, the world’s largest rare earth metals producer.

Chinese firms will not have first-mover advantages in Greenland, as small miners from Australia and the UK dominate the local investment scene. That said, they stand to enjoy active support from the Danish government should they choose to invest on the island. We anticipate that larger companies, including buyers from China, will seek strategic stakes in mining projects initiated by enterprising smaller firms like those mentioned above. It is also very likely that given Greenland’s small population, Chinese firms will import substantial numbers of workers from China to build the power plants, transmission lines, ore processing facilities and other supporting infrastructure for Chinese-invested mines in Greenland.

As in so many other areas, China is entering a new global arena. It remains to be seen whether it will follow existing norms, or attempt to change the system over time. “China has a legitimate right to be interested in and participate in what happens in the Arctic, but it requires that the rules are observed,” Greenland premier Kuupik Kleist said in November. Countries like China “must not believe that they can come and decide about the residents and just take care of the resources in the Arctic, which are regulated by laws, treaties and binding agreements. Those cannot be tampered with.”

It will be interesting to watch how Danish and other regional experts’ perceptions evolve on this issue as China’s Arctic presence increases. According to SIPRI researcher Linda Jakobson, “There is some irony in the statements by Chinese officials calling on the Arctic states to consider the interests of mankind so that all states can share the Arctic. These statements appear to be contrary to China’s long-standing principles of respect for sovereignty and the internal affairs of other states.” (pdf)

In the three Near Seas (Yellow, East China and South China), Beijing promotes an extreme minority perspective on international law at odds with the UN Convention on the Law of the Sea that holds that coastal states have the right to regulate and restrict non-resource-related activities between the 12 nautical mile limit of their territorial waters and the 200 nautical mile limit of their claimed exclusive economic zone, or EEZ. Beyond its own region, by this logic, Beijing must honor similar claims by Arctic states. Canada, for instance, maintains that foreign vessels must obtain permission before transiting its vast northern archipelago.

Transit permission may become important if China continues building its icebreaker fleet and summer passage through the Canadian and Russian Arctic routes becomes increasingly viable. China currently has only one operational icebreaker, the Xuelong, but a new 8,000 tonne vessel is due to enter the fleet in 2014. The likely westbound route from Nuuk in Western Greenland to Qingdao via the Canadian Arctic is around one-half the distance to Qingdao through the Panama Canal, while the likely eastbound route via the Russian Arctic is less than two-thirds the distance to Qingdao via the Cape of Good Hope.

The Great Game for Arctic resources is heating up and China is likely to play an expanding role as Denmark opens the door for Beijing to enter the Arctic on the diplomatic front and on the investment front via mining projects in Greenland.

Andrew Erickson is a professor at the U.S. Naval War College and a research associate at Harvard’s Fairbank Center. Co-founder of China SignPost (洞察中国), he blogs at www.andrewerickson.com. Gabe Collins is a Co-founder of China SignPost and is a J.D. candidate at the University of Michigan Law School.

Associated Press

By Stanley Lubman

The recent Wukan protest has faded from the media, but one issue continues to percolate in its wake: the role of Chinese law, which some protesters invoked.

Two Chinese intellectuals have since spoken up about the need to strengthen the rule of law around property rights and, more importantly, about the need for a “paradigm shift” in the way officials think about rights and handle related disputes.

Some of the Wukan protesters were indeed conscious of their rights, as evidenced by one villager’s exclamation that “we must use the weapons provided by the legal system to fight corruption to the end.” Another protestor said he was confident that the central government would assist villagers who had lost land due to the corrupt actions of local officials because “the country is ruled by law.”

The protest was resolved, not by law, but by the administrative actions of provincial Party officials. It’s possible that the village officials responsible for the land transaction that sparked the protests will be accused of corruption, tried and punished, but even that legal process, if it occurs, would likely be a fait accompli following a prior Party decision on their punishment.

The protests nevertheless prompted some interesting commentary on Chinese legal issues, including from economist Hu Deping, the son of former CCP General Secretary Hu Yaobang.

In a commentary posted to a forum discussing a People Daily’s editorial on Wukan, Hu observes that rural land is often treated as if it belongs to the state rather than by collectives as provided by law — an erroneous conviction that helps justify forced demolitions. Disregard for rural collective rights, he writes, “is enough to change the character of reform.” In a single powerful sentence – all the more powerful because it comes from a princeling — he declares his hope “that the Wukan incident can push society into establishing a system that takes democracy and the rule of law as its foundation.” He ends with the hope that similar issues will be solved “using rule of law and negotiations.”

A lengthier and even more provocative commentary was posted to the same forum by Wu Si, editor of the party history magazine Yanhuang Chunqiu.

In analyzing the protests, Wu contrasts two “modes of thought” that appeared in Wukan. One was a hostile “us-versus-them” mentality that assumed a zero-sum conflict. Wu argues that such thinking is common in situations like Wukan’s owing in part to the failure of the courts, which are generally reluctant to take up cases involving land and “the political regime.” He notes that the Party Secretary of Shanwei, the prefectural city in which the village of Wukan is located, was ready to blame outsiders and the media for deepening the conflict.

Wu’s second “mode of thought,” which he proposes as an alternative approach to social conflict, is the ”civil rights mode of thinking,” or rule of law. This, he argues, should be the only basis for the government’s approach, and ought to lead to decision by an independent court without the government being “disturbed” by administrative agencies. He goes on to note that the provincial working group that eventually negotiated an end to the process promoted five principles for resolving the crisis, two of which were “total transparency” and “rule of law.” Wu argues the weakness of China’s courts makes the involvement of administrative working groups necessary. That, in turn, invites administrative interference. In the future, he writes, there must be “independent court rulings” and constitutional government.

Wu traces the “us-versus-them mentality” to the historical emphasis placed by the CCP on class warfare. He argues that shifting the emphasis to other CCP principles — serving the people and putting the people first — would expand political rights and economic freedom and lead to a prosperous society that would be “relatively stable” and “harmonious” as well. Wu concludes by urging the property rights must be clarified, village elections improved and laws enforced.

Wu offers no sure path to attain the goal he advocates, but his conclusion is most dramatic: “To solve problems with civil rights and the rule of law in mind, there must be a paradigm shift for cadres,” who need to change the way the way they “mediate crises.” In solving social conflicts, he writes, new ways of thought “will open a new road” for Chinese society.

Invocation of the rule of law has been a ritual for some years in China, but it is usually only activists and law reformers who are willing to suggest it is an entirely distinctive approach to ordering society. The call for a “paradigm” change in a party magazine suggests something more radical than the usual slogans and formulas.

Some Western observers, including this writer, have tried to incorporate into their analyses of Chinese law the idea of “legal culture” — the way people in a society, from top to bottom, think about where law comes from, its aims and its methods. That is what Wu Si touches on when he suggests that cadres rethink about how they address social conflict. He is proposing that in practice they consciously place a much greater reliance on law and on legal institutions, which could become “a force for reform” leading to “systemic changes.”

Wu also suggests that Guangdong and Shanwei might initiate reforms. In recent years, a number of important reforms have been initiated locally. Among them is the 2003 adoption in Guangzhou of an open government law, which preceded adoption of a similar law by the central government. Even more important was the adoption by Sichuan Province of China’s first provincial-level administrative procedure law in 2008, followed by Shandong’s adoption of a similar law that became effective on January 1, 2012. There is hope that these two laws will also eventually provide a model for reform of existing national legislation.

If thoughtful reflections like those discussed here inspire local reforms, the Wukan villagers will deserve credit for having struck a chord that could continue to resound.

Stanley Lubman, a long-time specialist on Chinese law, is a Distinguished Lecturer in Residence at the University of California, Berkeley, School of Law and is the author of “Bird in a Cage: Legal Reform in China After Mao,” (Stanford University Press, 1999).

Associated Press

NOTE: This column has been changed since it was first posted. See below.

By Stanley Lubman

The recent Wukan protest has faded from the media, but one issue continues to percolate in its wake: the role of Chinese law, which some protesters invoked.

Two Chinese intellectuals have since spoken up about the need to strengthen the rule of law around property rights and, more importantly, about the need for a “paradigm shift” in the way officials think about rights and handle related disputes.

Some of the Wukan protesters were indeed conscious of their rights, as evidenced by one villager’s exclamation that “we must use the weapons provided by the legal system to fight corruption to the end.” Another protestor said he was confident that the central government would assist villagers who had lost land due to the corrupt actions of local officials because “the country is ruled by law.”

The protest was resolved, not by law, but by the administrative actions of provincial Party officials. It’s possible that the village officials responsible for the land transaction that sparked the protests will be accused of corruption, tried and punished, but even that legal process, if it occurs, would likely be a fait accompli following a prior Party decision on their punishment.

The protests nevertheless prompted some interesting commentary on Chinese legal issues, including from economist Hu Deping, the son of former CCP General Secretary Hu Yaobang.

In a commentary posted to a forum discussing a People Daily’s editorial on Wukan, Hu observes that rural land is often treated as if it belongs to the state rather than by collectives as provided by law — an erroneous conviction that helps justify forced demolitions. Disregard for rural collective rights, he writes, “is enough to change the character of reform.” In a single powerful sentence – all the more powerful because it comes from a princeling — he declares his hope “that the Wukan incident can push society into establishing a system that takes democracy and the rule of law as its foundation.” He ends with the hope that similar issues will be solved “using rule of law and negotiations.”

A lengthier and even more provocative commentary was posted to the same forum by Wu Si, editor of the party history magazine Yanhuang Chunqiu.

In analyzing the protests, Wu contrasts two “modes of thought” that appeared in Wukan. One was a hostile “us-versus-them” mentality that assumed a zero-sum conflict. Wu argues that such thinking is common in situations like Wukan’s owing in part to the failure of the courts, which are generally reluctant to take up cases involving land and “the political regime.” He notes that the Party Secretary of Shanwei, the prefectural city in which the village of Wukan is located, was ready to blame outsiders and the media for deepening the conflict.

Wu’s second “mode of thought,” which he proposes as an alternative approach to social conflict, is the ”civil rights mode of thinking,” or rule of law. This, he argues, should be the only basis for the government’s approach, and ought to lead to decision by an independent court without the government being “disturbed” by administrative agencies. He goes on to note that the provincial working group that eventually negotiated an end to the process promoted five principles for resolving the crisis, two of which were “total transparency” and “rule of law.” Wu argues the weakness of China’s courts makes the involvement of administrative working groups necessary. That, in turn, invites administrative interference. In the future, he writes, there must be “independent court rulings” and constitutional government.

Wu traces the “us-versus-them mentality” to the historical emphasis placed by the CCP on class warfare. He argues that shifting the emphasis to other CCP principles — serving the people and putting the people first — would expand political rights and economic freedom and lead to a prosperous society that would be “relatively stable” and “harmonious” as well. Wu concludes by urging the property rights must be clarified, village elections improved and laws enforced.

Wu offers no sure path to attain the goal he advocates, but his conclusion is most dramatic: “To solve problems with civil rights and the rule of law in mind, there must be a paradigm shift for cadres,” who need to change the way the way they “mediate crises.” In solving social conflicts, he writes, new ways of thought “will open a new road” for Chinese society.

Invocation of the rule of law has been a ritual for some years in China, but it is usually only activists and law reformers who are willing to suggest it is an entirely distinctive approach to ordering society. The call for a “paradigm” change in a party magazine suggests something more radical than the usual slogans and formulas.

Some Western observers, including this writer, have tried to incorporate into their analyses of Chinese law the idea of “legal culture” — the way people in a society, from top to bottom, think about where law comes from, its aims and its methods. That is what Wu Si touches on when he suggests that cadres rethink about how they address social conflict. He is proposing that in practice they consciously place a much greater reliance on law and on legal institutions, which could become “a force for reform” leading to “systemic changes.”

Wu also suggests that Guangdong and Shanwei might initiate reforms. In recent years, a number of important reforms have been initiated locally. Among them is the 2003 adoption in Guangzhou of an open government law, which preceded adoption of a similar law by the central government. Even more important was the adoption by Sichuan Province of China’s first provincial-level administrative procedure law in 2008, followed by Shandong’s adoption of a similar law that became effective on January 1, 2012. There is hope that these two laws will also eventually provide a model for reform of existing national legislation.

If thoughtful reflections like those discussed here inspire local reforms, the Wukan villagers will deserve credit for having struck a chord that could continue to resound.

CORRECTION: China’s first provincial-level administrative procedure law was adopted in Hunan. A previous version of this column mistakenly said the law was first adopted in Sichuan province.

Stanley Lubman, a long-time specialist on Chinese law, is a Distinguished Lecturer in Residence at the University of California, Berkeley, School of Law and is the author of “Bird in a Cage: Legal Reform in China After Mao,” (Stanford University Press, 1999).

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

Sina Weibo

A screenshot shows a series of photos of Huaxi’s landmark replicas posted to the Sina Weibo microblogging site, where they prompted a criticisms of China’s culture of duplication.

Huaxi Village – long considered China’s richest village – showcased its plus-size replicas of landmarks like Paris’ Arc de Triomphe, the U.S. Capitol and the Tiananmen Rostrum last week as a way to draw attention from tourists.

Instead, the village has found itself in the middle of an ongoing debate about China’s penchant for duplication and whether it stymies innovation.

Huaxi, a village of more than 1,500 people a less than three-hour drive from Shanghai that has long been touted as a model of China’s version of capitalism, looking to further boost its business from tourism.

Sun Haiyan, a spokesman for Huaxi Village, said on Thursday that the village’s economy took in 200 million yuan (US$31 million) from tourism-related business last year.

The replicas of global landmarks are intended to boost that business. Though they are a couple of years old, they received renewed attention last week, during the National Day weeklong holiday, when the village celebrated the 50th anniversary of its establishment.

“In 2010, more than two million people visited our village,” Mr. Sun said in an interview. “The figure will surely be bigger this year.”

But the replicas have drawn a heated discussion on China’s Internet, which has been buzzing about issues surrounding innovation since the death last week of Apple Inc. co-founder Steve Jobs.

“Tiananmen should apply for a patent. Otherwise the replicas of Tiananmen will come out constantly,” Shao Lianxiang, vice president of Chinese property developer Zhongyi Holding Co., wrote on the Sina Weibo. One internet poster with the online pseudonym Jiangdong Dahu said on Sina Weibo: “This is plainly the work of uneducated, uncultured villagers.”

In a commentary published Thursday, the Beijing Morning Post said the replicas proved that the village’s success hasn’t engendered a distinctive cultural identity. Rather, it has provided a vivid example that illustrates the Chinese people’s psychological state.

It also brought up a replica of Beijing National Stadium, or the Bird’s Nest, being built in a suburb of Nanjing. “In recent days, the Chinese public has hotly debated the topic of why doesn’t China have a lifelong innovator like [Steve] Jobs. If Jobs could see the Capitol Hill in China’s No. 1 village, what would he think? How many replicas of the White House and Bird’s Nest will we see before a Chinese Jobs is born?”

Duplication in China, long a gripe among trade partners, has grabbed even more headlines of late, including a fake Apple Store selling real iPads and iPhones in a setting remarkably similar to Apple’s trademark retail outlets. In Changzhou, Jiangsu Global Digital Cultural Theme Park Co. has opened a park called Global Animation Joyland, which bloggers have called attention to because it includes a section that appears to be based on Activision Blizzard Inc.’s World of Warcraft online game.

– Rose Yu

Sina Weibo

A screenshot shows a series of photos of Huaxi’s landmark replicas posted to the Sina Weibo microblogging site, where they prompted a criticisms of China’s culture of duplication.

Huaxi Village – long considered China’s richest village – showcased its plus-size replicas of landmarks like Paris’ Arc de Triomphe, the U.S. Capitol and the Tiananmen Rostrum last week as a way to draw attention from tourists.

Instead, the village has found itself in the middle of an ongoing debate about China’s penchant for duplication and whether it stymies innovation.

Huaxi, a village of more than 1,500 people a less than three-hour drive from Shanghai that has long been touted as a model of China’s version of capitalism, looking to further boost its business from tourism.

Sun Haiyan, a spokesman for Huaxi Village, said on Thursday that the village’s economy took in 200 million yuan (US$31 million) from tourism-related business last year.

The replicas of global landmarks are intended to boost that business. Though they are a couple of years old, they received renewed attention last week, during the National Day weeklong holiday, when the village celebrated the 50th anniversary of its establishment.

“In 2010, more than two million people visited our village,” Mr. Sun said in an interview. “The figure will surely be bigger this year.”

But the replicas have drawn a heated discussion on China’s Internet, which has been buzzing about issues surrounding innovation since the death last week of Apple Inc. co-founder Steve Jobs.

“Tiananmen should apply for a patent. Otherwise the replicas of Tiananmen will come out constantly,” Shao Lianxiang, vice president of Chinese property developer Zhongyi Holding Co., wrote on the Sina Weibo. One internet poster with the online pseudonym Jiangdong Dahu said on Sina Weibo: “This is plainly the work of uneducated, uncultured villagers.”

In a commentary published Thursday, the Beijing Morning Post said the replicas proved that the village’s success hasn’t engendered a distinctive cultural identity. Rather, it has provided a vivid example that illustrates the Chinese people’s psychological state.

It also brought up a replica of Beijing National Stadium, or the Bird’s Nest, being built in a suburb of Nanjing. “In recent days, the Chinese public has hotly debated the topic of why doesn’t China have a lifelong innovator like [Steve] Jobs. If Jobs could see the Capitol Hill in China’s No. 1 village, what would he think? How many replicas of the White House and Bird’s Nest will we see before a Chinese Jobs is born?”

Duplication in China, long a gripe among trade partners, has grabbed even more headlines of late, including a fake Apple Store selling real iPads and iPhones in a setting remarkably similar to Apple’s trademark retail outlets. In Changzhou, Jiangsu Global Digital Cultural Theme Park Co. has opened a park called Global Animation Joyland, which bloggers have called attention to because it includes a section that appears to be based on Activision Blizzard Inc.’s World of Warcraft online game.

– Rose Yu

Pedro Ugarte/Agence France-Presse/Getty Images

India: Land of equal opportunity?

A spate of self-proclaimed foreign immigration bureaus hoping to attract Chinese migrants popped up recently on Sina’s popular Twitter-like Weibo microblogging service and just as quickly have disappeared.

These microblogs—claiming to represent the Philippines, South Korea, Sri Lanka, Malaysia, and even Iraq and Libya—extolled the virtues of second- or third-world countries that don’t typically top a Chinese migrant’s wish list. Most of them were forgettable parodies mocking the country they were said to represent, but one—India—was on its way to becoming an Internet phenomenon before it was deleted.

For nearly a week, Weibo users have been lamenting the loss of the “Bureau of Immigration of India,” which had amassed several thousand followers and helmed a lively, though factually suspect, discussion touching on some of the most contentious topics in Chinese society: real estate, medical care, education, the wealth gap and democracy.

“Those who want to get out and enjoy a democratic society and rule of law but don’t have the means to go to a developed country can check out these immigration bureaus,” wrote Weibo user Orchid Grass Under the Moon wrote.

The “Bureau” bragged that ordinary people in India really and truly shared in the fruits of economic growth, and said an investment of a mere 250,000 rupees (about $5,400) in a local business was all it took to qualify for an investor’s visa.

In reality, India does not offer special visas to investors. A U.S. investment green card, which is highly sought-after on the mainland, requires an investment of half a million dollars or more.

The “Bureau” went on to list a number of reasons why Chinese immigrants choose India. At number six: “a perfect higher education system.” India’s higher education system, it said, “adopts the superior standards of the British higher education system and is humankind’s most perfect higher education system. The Indian Institute of Technology is ranked third in its class in the world. There’s a saying among American and Indian educators that goes, ‘Those who don’t get into IIT end up at MIT.’”

Perhaps not quite. The 2010 edition of the QS World University Rankings put IIT’s top Bombay campus at number 187, while MIT comes in at number 5.

It also boasted that rides on most Indian trains were free and unlimited, patients at Indian hospitals get $10 per day for a nutritional allowance, and none of the top 40 richest people in India were involved in real estate.

None of these claims are true either.

In a less patently false though still highly debatable statement, the “Bureau“ assured its Chinese readers that they would enjoy high status if they chose to immigrate. “Chinese belong to the Kshatriya varna, who are well respected by the Indian people. Chinese people won’t be discriminated against as in other countries.”

Weibo users caught on quickly, with many embracing the spirit of this ideal “India.”

“At first I thought the Indian Immigration Bureau started a microblog to attract Chinese immigrants, but then I discovered so many other immigration bureaus were also on Weibo. And I realized these immigration bureau microblogs were just people venting their discontent with society,” Weibo user Kukmoon Guyue said.

It’s unclear why the Weibo “immigration bureaus” were shut down, though the assumption amongst former followers is that they were “harmonized,” Chinese Internet slang for censored. Strangely, the “bureaus” for Iraq and Libya have remained open. A spokesman from Sina had no immediate comment.

The press department of the Indian Embassy in Beijing disavowed any responsibility for the “Bureau of Immigration of India” Weibo account. “We had nothing to do with its creation and we didn’t have anything to do with its deletion,” spokesman Vinayak Chavan told China Real Time Report.

A number of Indian government departments do in fact have verified accounts on Weibo, including the Ministry of Tourism, the Culture Wing of the Embassy of India in Beijing, and the Indian Consulate of Guangzhou.

– Jean Yung, with contributions from Wynne Wang in Shanghai and Vibhuti Agarwal in New Delhi

Vincent Yu/Associated Press

China’s Vice Premier Li Keqiang makes a toast during a welcoming dinner at a hotel in Hong Kong Wednesday, Aug. 17, 2011.

Chinese Vice Premier Li Keqiang, widely expected to replace Wen Jiabao as premier in 18 months, showed off his English-language skills at a speech Thursday morning on a high-profile trip to Hong Kong.

In the final moments of an 11-minute address at The University of Hong Kong, Mr. Li surprised an audience of top political and business leaders when he switched to speak in English, expressing confidently his praise for the accomplishments of Hong Kong’s oldest university. Unlike most universities in China and Hong Kong, English is HKU’s main language of instruction.

“HKU…has become a key higher education institution in China, playing an increasingly important role in China’s development and integration with the world,” Mr. Li said, at times pausing to ensure that each word was spoken clearly.

Previous Chinese leaders have been relatively eager to showcase their English acumen–in particular Jiang Zemin, who was known to recite the Gettysburg Address and croon Elvis Presley songs. The current crop of top officials has been less demonstrative of its foreign-language skills–and generally more guarded, especially President Hu Jintao

Even less is known about the rising generation of rulers: Mr. Li and current Vice President Xi Jinping. They seldom appear in public outside the carefully crafted bubble of the state media apparatus–rarely, if ever, for example, speaking to foreign media, particularly since they were promoted into the ruling Communist Party’s nine-member Politburo Standing Committee in 2007 and effectively anointed as the next bosses of what is now the world’s No. 2 economy.

As a result, glimpses of Mr. Li and Mr. Xi are much studied by China watchers and foreign governments trying to gauge where the Asian giant might be headed. U.S. officials, for example, are hoping this week’s visit to China by U.S. Vice President Joe Biden to offer some insight into Mr. Xi, with whom he is meeting extensively

Mr. Li’s three-day visit to Hong Kong, which ended Thursday, was dominated by big economic offerings, including several initiatives aimed at easing the flow of so-called offshore yuan traded in Hong Kong back into mainland China. He also announced plans for funds that would let mainland Chinese investors trade Hong Kong stocks.

Mr. Li’s bilingual speech at HKU sparked discussion in mainland China’s vibrant online community. Some bloggers on Sina’s popular Twitter-like Weibo microblogging service raved about the vice premier’s English capabilities. Others, however, said they weren’t happy that he spoke English in a former British colony.

“Does Hong Kong belong to China or England?” wrote one angry user. “Never forget the dream of being a slave to the West, never forget to pander.”

“For a high-level leader at that age to dare to use English in a public speech – even if he is consulting a script – is progress,” countered another.

– Jason Dean and Chester Yung

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

Qilai Shen/Bloomberg

Models pose at the Sina Corp. weibo booth at the ChinaJoy Expo, also known as the China Digital Entertainment Expo and Conference, in Shanghai, China, on Friday, July 29, 2011.

With microblogs, particularly Sina’s Weibo.com, playing an increasingly central role in public debate on China’s censored Internet, many have feared Beijing might move to shut them down. Instead, it appears the authorities may continue to cautiously embrace them.

In an article posted to its English language website on Thursday, China’s state-run Xinhua news agency sang the praises of microblogs, saying that China’s some 195 million microbloggers have “become strong force to help those in need.”

The article cited the story of how microblog users helped raise 600,000 yuan, or about $91,000, for a boy who needed skin grafts for severe burns on his head from an accident by circulating photos of the boy playing with his puppy while wearing his surgical mask.

The Xinhua article follows a commentary appearing earlier in the week in the Communist Party’s flagship People’s Daily newspaper that also acknowledged the new role of microblogs in public discourse and encouraged officials to get better at using them.

“In sudden-breaking events, the information tends to come from microblogs, and most of the public commentary arises from microblogs,” the commentary said, according to a translation by China Media Project. “More and more people are no longer looking on but are deciding to participate…This does not exclude government offices and leaders from various levels.”

Neither piece made specific mention of last month’s deadly high-speed rail collision, described by some analysts as a watershed moment for Weibo after Chinese Internet users flooded the service to exchange information and lambast the government for its opaque handling of the accident. The People’s Daily commentary nevertheless appeared to take a lesson from that episode, arguing that the key to successful government microblogging is the release of “timely and accurate” information.

Also key, it said, was the ditching of officialese in favor of plain language: “The 140-character limit means that you must speak concisely; only by spurning official-speak and pre-packaged formulas can you explain the facts and speak with meaning.”

When communicating directly with the public, the People’s Daily added, “the consequences of speaking falsehoods and saying the wrong thing are ‘very serious.’”

While the newspaper didn’t elaborate on what it meant by “very serious” consequences, it might have had in mind Ministry of Railways spokesman Wang Yongping, whose various gaffes in the aftermath of the rail accident have made him into a poster boy for government obfuscation among Chinese Internet users.

Weibo and its ilk may not be out of the woods yet, however. Noting that the sector was “still in its infancy,” the Xinhua article warned further regulation of microblogs may yet be on the horizon. “There are no laws or regulations concerning how they are used, and the authenticity of information posted on microblogs can be hard for most users to verify,” the article said.

In fact, China’s microblogs are already regulated. Like Chinese search engines and online video sites, microblogging services need licenses to operate and are subject to censorship. Politically sensitive posts are often removed while searches involving sensitive keywords sometimes come up empty.

Interestingly, Weibo’s censors have displayed a relatively light touch when it comes to the train collision, deleting some of the more inflammatory posts but allowing the majority to stay on the site. Whether authorities have truly begun to rethink their approach to the Internet or are just paying lip-service public opinion in the wake of a tragic accident remains to be seen.

– Loretta Chao. Follow her on Twitter @lorettac

Alexander F. Yuan/Associated Press

A CRH high-speed train leaves the Beijing South Station for Shanghai during a test run on the Beijing-Shanghai high-speed railway in Beijing, China, Monday, June 27, 2011.

A casual glance at the latest ridership statistics from China’s Ministry of Railways suggests the newly launched Beijing-Shanghai high-speed rail line is doing well despite last month’s tragic collision on a different part of China’s high-speed rail network.

Make that very well.

Between its public launch on June 30 and the end of July, the crown-jewel of China’s high-speed rail system carried an average of 179 trains a day and transported a total of 5.26 million passengers, according to a statement posted on the ministry’s website (in Chinese). Those numbers, the statement said, mean the line ran at 107% of capacity.

Unlikely in the best of circumstances, that better-than-perfect ridership rate is even more difficult to believe after the July 23 accident, in which at least 40 were killed and more than 190 injured after one high-speed train rear-ended another near the city of Wenzhou. Accounts from passengers suggest China’s high-speed trains, many of which were struggling to fill seats before the accident, have been running half-empty in recent days.

The number was ridiculed online almost immediately after being released Monday, and even some state-run media took potshots at it Tuesday–yet another public relations black eye for a government body that has been awash in criticism for its opaque handling of the accident.

“A hundred and seven? Is this a rumor? Please stop spreading lies,” one user of the popular Sina Weibo microblogging service wrote under another user’s photo showing an empty high-speed rail car. “You mean the vacancy rate is 107% right?” wrote another under the same photo.

The better-than-perfect number appears not to be a lie, exactly, but rather a consequence of the Railways Ministry’s unorthodox approach to calculating ridership. The ministry counts one seat on a Chinese train as being at 200% capacity if two different people sit on it during different legs of the trip, Zhao Jian, a railway expert at Beijing Jiaotong University, told the state-run China Daily newspaper on Tuesday. He added that foreign railways typically figure capacity by the percentage of a trip the seat is occupied.

Amtrak, as well as most American airlines, calculate percentage capacity by dividing “passenger miles,” or the total length of the trip times the number of occupied seats, by “seat miles,” the length of the trip times the total number of seats. (See here for example.)

Monday’s statement didn’t offer a break-down of passenger miles, making it impossible to calculate ridership on the line using standard methodology. Calls to the ministry rang unanswered Tuesday.

Nevertheless, the availability of tickets on the Beijing-Shanghai line suggests trains are running far below capacity. Roughly three-quarters of the tickets for a Tuesday afternoon high-speed train from Shanghai to Beijing were still available as of 7:30 p.m. the previous evening, China Daily reported.

One foreign passenger who took an 8 a.m. train from Shanghai to Beijing on Tuesday said there were only two passengers, including himself, in the first-class cabin when the train departed, with another three getting on the train at Nanjing. “The other first class car seemed to have about the same — a handful of passengers,” he said.

Meanwhile, airlines that had given deep discounts on their flights between Shanghai and Beijing after the new rail line opened appear to be having little trouble filling seats, with one Chinese Eastern Airlines official telling China Daily that the carrier was close to matching sales records that it set on the route during last year’s Shanghai Expo.

A check of Chinese travel site eLong.com Tuesday evening showed tickets for the vast majority of Wednesday flights from Beijing to Shanghai selling at full price, with only a handful offered at relatively modest 10% to 20% discounts.

As noted in state media, some people have continued to ride the country’s high-speed trains despite the Wenzhou accident, in part because they remain cheaper than planes. Fewer, however, seem willing to cut the Railways Ministry slack on its math.

“Does that mean the Beijing-Shanghai line offers standing tickets?” quipped a commenter in Baidu’s Tieba discussion forum, referring to seat-less tickets available on the country’s slower trains. “Or is that girls sitting on boys’ laps?”

– Josh Chin. Follow him on Twitter @joshchin

Bloomberg

China’s high-speed rail system is slated to grow to 16,000 kilometers by 2020.

A war of words grew this week between China and Japanese rolling stock manufacturers, reigniting a battle over whether Chinese state-owned firms stole high-speed rail technology and are now attempting to market it themselves overseas.

After China announced late last month it had filed 21 international patent applications, a key step in making trains available for purchase overseas, major Japanese firms, including Kawasaki Heavy Industries Ltd., threatened to sue if China attempted to obtain patents for technology previously developed in Japan. The dispute has spilled into politics, too, with Japanese Foreign Minister Takeaki Matsumoto telling his Chinese counterpart during meetings last week Japan was “closely monitoring” the situation, according to Kyodo, a Japanese news agency.

China responded indignantly to the threats, flexing its muscle as both an important market for high-speed rail development as well as a country whose state-owned firms have been more aggressive in pursuing deals overseas, often undercutting their competitors on price.

A spokesman for the Chinese Railways Ministry told the state-run Xinhua news agency in remarks published Thursday that technology being used in China’s high-speed rail system, which is slated to grow to 16,000 kilometers by 2020, is superior to Japan’s network, known as the Shinkansen. The remarks by the ministry’s spokesman, Wang Yongping, came a week China opened its signature Beijing-Shanghai high-speed rail line, the growing network’s most celebrated corridor.

“The Beijing-Shanghai high-speed railway and Japan’s Shinkansen cannot be mentioned in the same breath, as many of the technological indicators used by China’s high-speed railways are far better than those used in Japan’s Shinkansen,” Mr. Wang said, according to Xinhua.

Joint ventures between China and Japanese rolling stock manufacturers extend back years. Kawasaki was among several firms that transfered technology to Chinese firms, like state-owned CSR Qingdao Sifang Co., only to see those companies soon begin competing against the Japanese giant.

China, for its part, has long maintained its technology is different from Kawasaki’s and others’, arguing its trains are faster and also incorporate reduced wheel-track friction. It likens improvements in Chinese high-speed trains over Japanese trains in recent years to advances decades ago by Japanese firms over earlier European rail designs.

“Our technologies may originate from foreign countries, but it doesn’t mean that what we have now all belongs to them,” said Ma Yunshuang, a deputy general manager at CSR Qingdao Sifang, according to the state-run China Daily.

These battles appear poised to heat up, though, as China begins more actively looking to export its technology overseas. China’s domestic high-speed rail market has boomed in recent years, but appears to be on the cusp of a slowdown. The Railways Ministry’s debt has grown alongside public discontent over high ticket prices for super-fast trains, which are too expensive for many Chinese. Railways Minister Sheng Guangzu has pledged in recent months to focus on high-speed rail projects already under construction before beginning new projects.

Meanwhile, countries including Russia, the U.K. and the U.S. are pledging to expand high-speed rail, and looking to the Chinese as a potential partner. Russia is developing a high-speed rail network ahead of the FIFA World Cup in 2018. The president of the state-run Russian Railways, Vladimir Yakunin, told Xinhua this month that Chinese companies “have good chances” at winning bids for high-speed rail development. The possibility of high-speed rail cooperation surrounded meetings in June between U.K. Prime Minister David Cameron and Chinese Premier Wen Jiabao. U.S. energy and transport giant General Electric signed an agreement last year with CSR to build high-speed rail in the U.S.

It’s unclear whether Japanese firms will put their money where their mouths are and eventually elect to sue Chinese rolling stock manufacturers for intellectual property rights infringement, a case that could be both difficult to prove and could take years and millions of dollars in legal fees to resolve. Perhaps more interesting will be how foreign executives across industries view the ongoing spat, many of whom still weighing the age-old China quandary: market access versus protection of intellectual property.

–Brian Spegele, follow him on Twitter @bspegele

There is something operatic about the way the Chinese Communist Party has been celebrating the 90th anniversary of its founding. Many leaders want to connect with the common people through culture, singing arias to the achievements of the Party—nostalgic songs being one of the better-known efforts. But there are others. As in days of old, many Chinese leaders are attending artistic performances, exalting contemporary figures whose fealty to the Party and the nation are seen as models for the modern China.

There are red songs and red slogans in the streets, red in the website banners of new sites–and now, some red faces, showing how the smallest tale—true or not—can undermine all the best-laid plans of self-congratulation.

A few days ago, a blogger using the name of “Baby Guo Meimei” used her Sina Weibo account to post photos of fashion accessories, luxury vehicles and the mansion where she purportedly lived, displaying the sort of wealth that many Chinese people associate with government connections and pilfered public funds. She claimed to be a manager at a company called Red Cross Commerce, which she claimed handles advertising on vehicles belonging to the Red Cross Society of China. Unsubstantiated rumors online linked her with a high-ranking official at the Red Cross Society of China. Even when flaws in her tale surfaced and spirited denials were issued by all parties, the outrage on the Internet found favor with many here that see the affair as another nasty echo of the very corruption that the original Communist Party was meant to combat.

And as is so often the case, government media was left scrambling to keep up with the often louder, and less discriminating, choir of the social media here.

These episodes—where the Party and the society sing from different sheet music—are becoming more common here. They echo the many problems of modern governance in China, and show how shallow the reservoir of political support for elites can often be. China’s massive economic development has tried to jump-start a happy middle class. But it’s also carved a canyon separating the rich from the poor, the politically connected and the propertied from everyone else. The same screaming self-interest that helped stoke the Chinese economic engine at takeoff is fast morphing into its own melodrama, from wealth being paraded about to fire safety up for sale.

But in China, outrage does not automatically inspire rebellion. Success has its critics, yet it also has plenty of fans. Observers looking for dissidents to storm the political stage are watching the wrong play. Activists have been shown the exit, or told to sit down and just watch. Some of the disenchanted still fail to accept that all current performances are directed by and for the Party, no matter how much some might think they can upstage the government.

And so on the 90th anniversary, the Party is faced with an age-old question: How might cadres better connect with the public? Officials might grant far more social freedom than in decades past, but political alternatives remain out of bounds for public discussion. Many cadres recognize that apart from the odd NGO doing good works, civil space is largely empty, lacking excitement or purpose. While there are smatterings of applause for the accomplishments that the Party has produced in recent years, many in the audience here simply sit on their hands and remain spectators. That’s not good when the authorities start asking for sacrifices or assistance.

But it would be wrong to see the current celebrations as just so much theater, colorful costumes without content or promise.

As ever in Chinese politics, the real action is backstage. In the wings are cadres who want to have more of a say in changing the current lyrics of governance. They recognize that the Party is faced with a populace largely unmoved by nostalgic spectacle and want that to stop. These players may not be ready for prime time, but they do have ideas and they like to experiment [zh]. For them, the anniversary a further opportunity to try to make themselves heard above the usual din.

And it is not the last opportunity. As the transition develops further, they will push all the harder for someone to step forward who is not a re-centralizer, or a reformer pointed in a conservative direction as Hu Jintao ever was. Those officials who think that accountability and public supervision are not show-stoppers would not mind someone new—a leader who just may be interested in reworking some of the current political script, building the sort of government that parts of a renovated Chinese society are starting to demand.

Collapse is not a scenario for the Chinese Communist Party, so long as its leaders make sure that new voices are not stifled. What high drama it would be if those about to step off the stage were to use the 90th anniversary to put political reform back on the playbill. That would certainly be worth celebrating in society—maybe even singing about.

Simon Dawson/AFP/Getty Images

Chinese Premier Wen Jiabao (C, L) and Culture Secretary Jeremy Hunt (C, R) watch two actresses performing Hamlet during a visit to Shakespeare’s birthplace in Stratford-upon-Avon, England, Sunday, June 26, 2011.

Judging by his portrayal in China’s state-run media, Wen Jiabao, the country’s 68-year-old premier known as “Grandpa Wen” to admirers, has talents that run the gamut. He plays basketball, does taichi, surfs the Internet, and helps clear rubble after natural disasters — all, of course, while he’s not busy running the world’s most populous country and pondering economic development.

The latest addition to the list: He’s a diligent Shakespeare enthusiast.

“I read and reread many of Shakespeare’s plays as a young man, and I have watched some of his plays, such as Twelfth Night, Othello, King Lear and Hamlet,” Mr. Wen said Sunday while visiting William Shakespeare’s home in Stratford-upon-Avon during a trip to the U.K., according to a copy of his remarks. “His works were not to be read only once or even ten times. They must be read up to a hundred times to be fully understood.”

Mr. Wen, who visited Hungary and will next fly to Germany on Monday on a five-day European tour focused on political meetings, also said he had reviewed some literary analysis before his visit. He cited a remark by Goethe as an example, according to China’s Xinhua news agency: “When I read Shakespeare’s first play, I already felt I belonged to him. When I read all of his plays, I felt like a blind man finally seeing the whole world.”

Mr. Wen also watched actors perform a scene from “Hamlet,” Xinhua said.

The Chinese leader’s gushing over Shakespeare led London mayor Boris Johnson to note in a column for the Telegraph that the Bard was, in his time, “the poet of the established order”:

Look at what happens to the putschist Macbeth or to the Gang of Eight conspirators who kill Julius Caesar. They all come to pretty unsavoury ends. And what is the theme of Hamlet, that work of cosmic genius that Mr Wen watched yesterday? Well, it is also about a constitutional outrage, in which the King is murdered by Claudius; and when the battle is over and the stage is strewn with bodies at the end of Act Five, Shakespeare takes care to leave the ruling party in power. Fortinbras takes over from Hamlet (and remember, we are laboriously told at the beginning that he has a good claim to the throne). Kent and Edgar take over from Lear. Macduff takes over from Duncan. Antony and Octavius take over from Caesar. Usurpers never prosper, unless, of course, like Bolingbroke, they take over from bad kings like Richard III.

…Yup: he was the greatest writer of all time, but he also knew how to cope with censorship, the secret police and the absence of anything that we would now call pluralist democracy. Which is why, I venture to say, it is very safe and correct to admire him in Beijing.

Whether or not Shakespeare fits the political message Beijing wants to deliver, a viewing of “Hamlet” is in keeping with the populist brand of public diplomacy favored by Mr. Wen, who has often added cultural events to his visits abroad.

In Budapest on Friday, Mr. Wen visited Eotvos Lorand University and watched students perform Hungarian and Chinese folk songs and poems, China’s foreign ministry said in a statement.

“Every ethnic group has its own strengths, different cultures can interact and learn from each other,” Wen said, before giving Chinese books to the students.

While visiting Tokyo last month, Mr. Wen met with the Japanese boy band SMAP, whose members serenaded him with a rendition of their popular song “The Only Flower In The World.”

Mr. Wen also delivered a political message during his Shakespeare outing, noting that China also has great literary works. “By reading about China’s history and culture, you will learn more about my country and the road it has traveled, including how it became strong and powerful and the great sufferings it has gone through,” he said. “People need to respect history and the fruits of other people’s intellect if they are to build a strong foundation for true friendship.”

– Owen Fletcher. Follow him on Twitter @owenfletcher

Keith Bradford/Bloomberg

A Chinese flag blows in the wind in front of Google Inc.’s offices in Beijing, China, on Thursday, June 2, 2011. Google Inc., owner of the world’s most popular search engine, said hackers tried to steal passwords from hundreds of Gmail users, targeting the accounts of government officials in the U.S. and Asia.

A day after Google’s latest revelation of an apparently China-based hacker attack on Gmail, the editor of a nationalistic Chinese tabloid posted a furious message online decrying repeated accusations that China is hacking into foreign computers.

But the target of his ire isn’t foreign governments or foreign media. Instead it was his own government’s lack of transparency.

“Those people and work units who have problems [with getting their computers hacked] don’t wish to or aren’t allowed to say so,” Hu Xijin, editor-in-chief of the Global Times, wrote in a post on microblogging site Sina Weibo that was later picked up and translated by the China Media Project. “Our security departments don’t reveal anything.”

Google said in a blog post on Tuesday that it had recently discovered a campaign, which “appears to originate from Jinan, China,” to gain access to Gmail accounts belonging to senior U.S. officials, Chinese activists and journalists.

Jinan is home to the Lanxiang Vocational School, also known as the Shandong Jinan Lanxiang Vestibule School, which was linked to a cyberattack on Google and other companies in 2009 that preceded Google’s decision in 2010 to move its Chinese-language search operation out of mainland China.

Google didn’t say how it traced this most recent attack to Jinan.

At a regular news briefing Thursday, a spokesman for China’s Foreign Ministry said it was “unacceptable” to blame China for the attacks .

Such responses are typical from Beijing, which routinely denies any role in cyberattacks on foreign websites. Far less common are responses like Mr. Hu’s.

While it didn’t specifically mention Google, Mr. Hu’s post appeared to be a response to the U.S. search giant’s accusations. “”How many officials does China have daily whose computers are attacked?” the post (in Chinese) began. “Why don’t we make this public? Now it’s all foreign countries pointing the finger at China, saying China is attacking foreigners’ computers, and our overseas students are all spies.”

In an unusually bold statement for a high-profile member of the Chinese media establishment, Mr. Hu blamed the situation on “insufficient transparency of information in China,” complaining that the Communist Party—which publishes the Global Times—was still acting as if it were an underground organization, “silent and circumspect.”

Reports of attacks on Chinese computers and websites in the local media are indeed rare, but Chinese cybersecurity experts privately say that such attacks happen frequently enough to be a significant concern.

Whether Chinese authorities will be convinced by Mr. Hu’s arguments remains to be seen. Although Beijing has increasingly paid lip service to benefits of greater transparency in recent years, in practice the government maintains a tight lid on information, particularly as it pertains to security.

In one example of China’s effort to appear more transparent, the country’s military confirmed last month that it had established an “online blue army,” backed by a budget in the tens of millions of yuan, to protect the country from cyberattacks.

To the frustration of many a journalist—possibly including Mr. Hu—the military declined to offer specifics on the kinds of threats the new online soldiers were recruited to fend off.

– Josh Chin. Follow him on Twitter @joshchin