The decision was the latest salvo in a battle between Shanghai and the central government over the health of the property market in the city that has been raging since the second half of last year and was an important side-plot during the NPC session, when the city leaders had to argue their case in front of their masters in Beijing.

Their defence has always been that rising prices were a sign of success in attracting foreign investment, to make Shanghai the country's one truly international city, where multinationals and overseas Chinese firms set up headquarters and their executives chose to live. If prices go up, it is a result of market forces.

The central bank sees a different picture. The property boom rides on a flood of bank credit, with 75 per cent of new bank loans in Shanghai last year going to this sector. If prices were to fall, that would expose the bank to losses running into billions of yuan.

It objected to the city government's vigorous promotion of the market in its media as an important element in the property fever.

Beijing would have noticed the city's growing inequality, with the rising prices pushing apartments beyond the reach of most families. As Shanghai people complain, if the average man did not spend one yuan on food and clothing during the year, he could at the end of December buy a single square metre.

The death of an old couple on January 9 when their house was set alight by a company clearing a site for development in central Shanghai was a symbol of this greed and injustice.

The political background to this battle is the retirement of Jiang Zemin from all his posts and the weakening of the Shanghai faction at the centre. After he left Shanghai to become party chief in June 1989, the city enjoyed policy support unprecedented since the Communist takeover. Now he has gone, the cities and provinces whose gross domestic product has fallen so far behind that of Shanghai want a bigger slice of the cake.

The central bank has been stepping up the pressure since the end of last year. On January 25, its Shanghai branch issued a warning to the city's banks that it was paying close attention to the property market and the potential risk this carried to the banks.

But the price rises did not slow. A survey by the City Property Network found that, last month, the price of second-hand homes - many bought by speculators - had risen by 9.15 per cent over January, a record for a single month, and following a monthly increase of 6.3 per cent in January.

On March 9, central bank governor Zhou Xiaochuan told a news conference in Beijing the rise in property prices was worthy of concern and attention.

That day, the China Banking Regulatory Commission in Shanghai ordered the city's lenders to improve their management of risk in bank loans.

The following day, Guo Shuqing, director of the State Administration for Foreign Exchange, told a meeting of the China People's Political Consultative Conference that his department was investigating the inflow of speculative capital and would deal seriously with illegal behaviour.

'This capital is driving up property prices and poses a very big risk to financial institutions, companies and individuals,' Mr Guo said.

'Once the bubble can no longer continue, the losses will be enormous.

'Since 2004, a large amount of offshore capital has entered the property market and clearly not for personal use.

'In some coastal cities, investors have bought dozens of apartments or even more than 100.'

Shanghai responded on March 7 by announcing a capital gains tax of 5.5 per cent on properties sold within one year and measures to improve the relocation of residents of homes that were being demolished.

The tug of war between the masters in Beijing and a city caught in a property fever is far from over.