Last year, China watchers were divided on whether the country would experience a hard or soft landing. The mainland's slower growth of late has pleased everyone, as both camps can now say they were right. A similar debate this year concerns whether or not Shanghai has a property bubble, and each side has come up with data and examples to support its case. The outcome is likely to be the same as last year - everyone right and wrong at the same time. The leading actor in this drama is the Shanghai municipal government, whose political fortunes will rise or fall in line with how well it manages the property cycle. The stance of the city government is clear: there is no property bubble and housing is affordable to most residents. Earlier this year, Shanghai statistical bureau spokesman Cai Xuchu said the average house price last year was 6,385 yuan per square metre, an increase of 14.6 per cent over 2003. These are politically acceptable figures as the rise is lower than the 19.6 per cent increase recorded in 2003 and supposedly demonstrates that the working class can purchase homes at reasonable prices. The city government's line is that, while prices are rising too fast in some areas, the real-estate market is a case study in 'healthy development'. The secondary players are real-estate firms which want to see prices rise every week. Tiandixing, a major Shanghai real-estate firm, said that the average price last year rose 23.8 per cent to 7,472 yuan per square metre and reached 9,100 yuan in January. The third is the silent majority - thousands of residents of Shanghai who are being pushed further and further from the city centre and taking on increasingly heavy mortgages. Many of them do not believe the government figures. So who is right? One factor is pure geography: how does one define Shanghai? Its land area encompasses 6,219 square kilometres, of which 2,057 sq km is rural and another 1,041 sq km is Chongming, the third-largest island in China. If you include rural and Chongming prices, areas where most Shanghai residents do not want to live, it reduces average prices significantly. Another factor, many people believe, is that the government does not want to announce a figure of more than 15 per cent, in order not to attract the attention of officials in Beijing worried about an inflated market or the anger of ordinary citizens who can no longer afford to buy an apartment. The city wants to put a lid on the debate. Its propaganda department exercises tight control over local journalists, forcing them to stick to official figures and banning the word 'bubble'. But as the debate has attracted national attention, mainland media outside Shanghai has taken interest and is more willing to call a bubble a bubble. In its latest issue, Beijing's influential Caijing magazine reported that a small group of well-connected developers, with close links to the city government, were sitting on 3,600 hectares of undeveloped land and happy to drive up prices. Caijing reported strong ties between these developers and government officials were inflating a real-estate bubble, and that the process of acquiring land was tilted in favour of Shanghai developers. The 21st Century Business Herald, published in Guangzhou, said the public was sceptical about the official figures but the actual rise remained a mystery. 'The sharp increase of prices in the city centre is really a bubble,' the weekly business newspaper said. 'But in what way can this risk be made public?' Outside China, the debate is being waged with equal intensity. The most famous bear is Andy Xie, China economist at Morgan Stanley, who said in October last year that the Shanghai market was a bubble that would not survive this year. His argument is that the US dollar would bottom this year after the Federal Reserve raised interest rates above 3 per cent, cutting off the flow of speculative 'hot money' to Shanghai. All of this would cause the market to fall because it depends on outside money from Taiwan, Hong Kong, Southeast Asia and, increasingly, Japan and the United States. Local residents, meanwhile, are being left behind. Jonathan Anderson, chief Asian economist of UBS, is more bullish. Last week he said that, between 2001 and last year, overall urban and property prices in Shanghai rose by nearly 70 per cent, making property as expensive in relative terms for the average urban employee as in 1995. This makes Shanghai property less affordable than in the rest of China, by a margin of 30 to 35 per cent. But he argues that affordability rates could be brought back in line by a few years of flattish housing prices. 'The bottom line is overheated, yes ... bubble, no,' Mr Anderson wrote. 'This is probably not a good time to be buying high-end residential apartments but also we see no reason to sell everything and run for the hills.'