A seven-point directive issued by the central Government reflects its efforts to regain control over the real estate industry from local developers. Thousands of small property companies have been making huge profits by "chao di," or "stir-frying property" -- buying and reselling in a speculative frenzy. The document said the Government impose strict limits on the amount of land that can be leased for development and particularly crack down on the rush to build luxury villas, hotels, office buildings and country clubs. Some of those now being built are supposed to be converted into standard apartments, to ease the housing shortage, and into regular commercial buildings. The new measures also threaten to shut down real estate companies that "stir-fry property" without actually developing it. Fear of Inflation "The Government will sternly punish those who engage in speculative activities with the aim of making quick money rather than a long-term investment," the New China News Agency said Saturday night in announcing the crackdown. The new measures are part of a broad program that the nation's leadership has introduced to cool the economy. While Western governments may view economic overheating as preferable to the recession many of them now face, Chinese leaders are concerned that their boom is unsustainable and will result in spiraling inflation. The People's Daily announced on Thursday that the Government has closed 1,000 of the nation's 1,200 economic development zones. These zones were set up by local authorities to attract foreign and domestic investment, and they often offered tax breaks and special incentives that violated national policy. A few days ago, the Government also announced plans to transform of state-owned companies into limited-liability corporations
"trickle in" to remote areas, as land, labor and transport costs rose in more developed regions. The problem is that such a process is likely to take decades. Meanwhile, poorer are still subsidizing richer coastal areas with cheap raw materials. Officials tacitly acknowledge this phenomenon, but they defend it as imperative for progress. "Development must be stable and orderly," said Zhao Jiaxing, vice director of Guizhou Economic Commission. "Actually, China can't develop evenly. But after the coastal areas get rich, their people will come here." By some accounts, the nation has four or five million millionaires as calculated in local currency. (A million yuan is equivalent to about $175,000 at the official rate of exchange.) Some Chinese believe that such estimates, reported in the Chinese press, are exaggerations, but they have aroused some resentment. "A certain level of gap encourages people to work," said Zhu Qingfang, who researches income differences at the Chinese Academy of Social Sciences. "But if the gap is too big, it makes people feel uneasy." In any case, the disparities are creating strains. Conspicuous consumption is growing in the cities, leading official newspapers to denounce "money worship." Huge migrations are creating headaches, as millions of peasants flock to cities in search of work. In the past, China restricted labor movements, but it has relaxed those rules, partly to allow urban economies along the coast to soak up surplus labor in the countryside. One result is a talent drain from the poorer inland regions in China's northwest. The "floating population" has also made it tricky for the Government to control the birth rate. The Government's overriding fear is that the new inequities will provoke unrest. But some Chinese argue that even the poor are better off and therefore will not challenge the system.
When Chinese authorities announced that monthly measurements of prices fell again in November -- by 2.8 percent -- they were marking the 14th consecutive monthly decline in the retail price index. Retail prices fell 2.9 percent in October and 3.3 percent in September. The Government has responded by trying to halt deflation with new rules on minimum prices and by cracking down on smuggling, which has become a serious problem recently. At an economic conference in Beijing last month, the country's top leaders set their priorities for 1999. The priorities include shoring up domestic demand, halting the slide in exports, reforming state-owned companies and increasing wages for urban and rural workers. That is a tall order, yet the overall outlook remains promising. China's leaders also promised not to devalue their currency, the yuan, this year. Rumors that China would be forced to devalue echoed around Asia throughout 1998. Yet they fed on an analysis of statistical figures that fundamentally misunderstood political and economic reality in China today. Naturally, there are some reasons for Beijing to devalue, like the need to spur exports at a time when the economy is weakening, when foreign investment is falling and when millions of urban workers are facing unemployment. Yet are deeper reasons for Beijing not to devalue. China is in the middle of a wrenching shift from a state-run to a market-oriented economy, trying to sell the bulk of its Government-owned industries, and probably the last thing leaders in Beijing want is a further cause of disruption. Making China's exports cheaper, many economists argue, is an inefficient way to strengthen its economy. In the long run, they say, maintaining the currency makes economic sense by providing a stable environment for investment, foreign and domestic.
''There is a real attempt to produce a second economic revolution, this time with a more coherent blueprint,'' said Anthony Saich, a professor of international affairs at Harvard University, who spent the last several years in China. ''But what kind of society do they want, what kind of politics? These issues are in limbo because nobody can talk about them.'' Far from providing an inspired vision of political change, party leaders seem united above all on the necessity of continued Communist rule. They appear to fear that any sign of weakness could cause their power to unravel. That fear is reflected in the obsessive security surrounding the 50th anniversary parade, whose aim is to prevent demonstrations or violence by workers, ethnic separatists, democracy activists or members of the banned Falun Gong spiritual movement. Mr. Jiang is using the anniversary celebrations to portray himself as the next great leader in the mold of Mao and Deng. Speaking this week to many of the world's top corporate executives in gleaming Shanghai, he vowed again to create ''a wealthy, strong, democratic and civilized modern socialist country.'' With Mao-style Marxism totally discredited, Mr. Jiang constantly evokes a fuzzy ''Deng Xiaoping theory'' as the nation's guide, and he often appears to be groping for his own true course. He is a leader who one week can mount the harsh repression of Falun Gong then another week select a daring modern French design for a national theater right next to the Great Hall of the People; a leader who in the same statement can pledge radical economic reform and call for a stronger role for the party in managing companies. As long as the party leadership remains united and resolute, its power seems secure for now. But many scholars think that the brew of slower growth, rising unemployment, spreading inequality and popular resentment of corrupt officials will give rise to more turmoil.
''The government has asked the scrap processors to report to the government about whether the methods they use are harmless or not, but usually the scrap processors don't bother,'' he said. ''In the past, the scrap industry has been a mess. The government is now making rules for them to follow.'' Felipe Tan, who used to own a scrap auction yard in Guangdong Province in southern China and a factory that sliced open secondhand telephone cables to extract the copper, said that he left the business after being undercut by smaller companies with dubious business practices. ''We got competitors coming in who were burning cables, throwing scraps into the river,'' Mr. Tan said. The Bureau of International Recycling, a Brussels-based trade association with 500 members, including many of the world's largest scrap and waste management companies, supports greater regulation in China, said Francis Veys, the group's director general. Tighter supervision should result in a cleaner environment in China, he said, by making it harder for less scrupulous companies to dump almost anything in containers and send it across the ocean. It will also force companies to do more work in places like the United States and Europe, separating trash from scrap before shipment, Mr. Veys added. ''We are very much in favor of controls,'' he said. The may prompt China to shift its imports to rely less on Europe, where regulators have been quick to work with other countries that want to restrict trash imports, Mr. Veys said. He predicted that China might wind up depending on the United States for a greater share of its imports as a result, although trans-Pacific scrap shipments are already causing problems for American smelters that have found it tough to find scrap for their own operations.