THE mainland economy is being pushed to the verge of crisis by a housing and property rental boom, says David Zweig, associate professor of social science at the Hong Kong University of Science and Technology. This boom was fuelled by an absence of clear land-ownership rights, stop-go decision-making, and taxation and banking systems that encouraged local administrations to promote non-profitable speculation, Prof Zweig said. These were the same flaws that underlay the unsustainable proliferation of economic development zones in the 1980s and early 1990s. Putting land-ownership rights on a clear legal footing and changing the nature of banking to nurture a more profit-oriented environment were among the most important tasks facing Premier Zhu Rongji, Prof Zweig told the South China Morning Post. In a paper on mainland economic reforms delivered last month at the Centre for Asian Studies, Prof Zweig said the specific policies that unleashed 'zone fever' were scrapped in 1993, but the institutional conditions were still in place for outbreaks of new fevers. 'Over-expansion of rental properties in Shanghai, Beijing and Shenzhen, as well as other 'hot' cities, threatens to bring China's economic miracle to a crashing halt,' he said. Shanghai's Pudong zone had 13.5 million square feet of office space in mid-1997, five times the 2.7 million square feet existing at the end of 1994. By the end of next year, total available office space could reach 26 million square feet, prof Zweig predicted. The paper examined the expansion of economic development zones, special economic zones and other similar experiments before the central government put a stop to them. Land, the report said, was being parcelled out for future development 'despite the fact there was not enough investment capital in all of China to build these zones'. The report quoted a Beijing Television report saying that, as of summer 1993, there were 8,000 development zones across the mainland, covering 20,000 square kilometres. International and domestic funds could develop just 20 per cent of the land taken up. The land was left unused, but the rights to its use served as collateral for bank loans for further investment elsewhere. The root of the frenzy was the policy of 'segmented deregulation' by which the mainland tried to open up certain areas to foreign investment while leaving other parts closed and tightly regulated. Most of the investment in the new zones came from the mainland, rather than foreign funds, and cities were encouraged to lobby authorities for the right to open new zones of their own. Even if they failed to get permission, or launched immediately ahead of one of the periodic economic slowdowns, they would be ahead of the game and could start building as soon as the freeze on development was lifted. China's political culture also played a role as zones, like many other public projects since 1949, became monuments to the local leader's term in office. However, institutional conditions played a key role, particularly government planning, 'soft' property rights, the perception that zone development was a politically sanctioned means to link with the global economy, and 'the local state's predatory strategy towards tax and resource accumulation'. Without firm legal property rights, local officials could expropriate land and sell it to whoever they chose, profiting at each transaction from taxes levied on land transfers. Individual rights were so ill-protected that local authorities could sell the use of the land and continue to hold on to the title. Yet neither the officials, the banks lending the money for the purchases nor the companies that bought the land could ultimately be held responsible for losses. 'In the end, an enormous amount of revenue was generated for government officials, bureaucrats and semi-public companies, with very little risk,' Prof Zweig said. The policy on zones has changed since 1993, but the weak banking system, speculation incentives and lack of responsibility for failure to make a profit have not.