Almost a decade ago, China's slumping property sector was singled out by economic plan- ners to spearhead a new round of economic growth. It became a government slogan and formed an integral part of the years of pump-priming that followed. Today, the sector is again in the spotlight but this time as a result of growing fears that it is becoming overheated, raising the threat of damaging fallout for the whole economy. The warning signs are everywhere. Property prices soared 54.2 per cent nationwide between 2002 and 2005, putting affordable housing out of the reach of the majority of China's population. Thousands of urban poor have been displaced from old inner-city housing to make way for new high-rises, many of which will stay empty because of a glut in supply. Ruthless developers are accused of ripping vast profits from the sector. The government is torn over how much regulatory control it needs to wield - too much could choke off a powerhouse of positive economic growth, while too little could trigger a repeat of the excesses of the property bubble in the early 1990s. 'If we started streamlining from the start, the development may be slow,' said Wang Juelin, vice-director of research policy centre of the Ministry of Construction. 'Real estate after a certain period of development and for the sake of future development needs to be regulated.' The State Council introduced a series of taxes and restrictions to curb speculation last summer, and Thursday's announcement of a 27 basis point rise in the one-year lending rate is part of ongoing efforts to keep a firm rein on the sector, which last year accounted for more than 53 per cent of all fixed asset investments. Earlier anti-speculation measures and credit tightening for the raw material industries initiated in the first half of 2004 have also paid off, according to officials, who point to state figures showing growth in property prices slowed to 5.5 per cent in the first quarter of this year, compared with 6.5 per cent for the previous quarter. These figures, however, may be questionable as they are drawn from an average of price movements in 70 cities covering a range of distinctly different economic prospects, from Nanning in the southwest where spurring economic growth is problematic, to richer Qingdao city in the northeast. Each city's data is an average of price movements across both rich and poor districts. Nevertheless, there is no denying the soaring level of building and investment, some of which has been generated by a new breed of domestic property speculator who, along with foreign counterparts, pushed demand in China's major cities to new highs in the three years to 2004. So great was the boom in property and construction that Beijing revised up the service industry's GDP by 16.7 per cent in 2004. Last year, the real estate sector contributed 7.2 per cent to economic growth, against the previous year's 4.6 per cent. Property developers like Shanghai Lujiazui Finance and Trade Development and Shanghai Shimao, as well as Hong Kong-listed Shanghai Forte Land have benefited from the boom and their stocks gaining in value. The overheating in the past few years is reminiscent of the runaway growth of the early 1990s, which was brought to an abrupt halt by sweeping austerity measures in the summer of 1993. The slow moves towards a new cycle of growth began on the back of central government pump-priming that began in 1998 but led to bottlenecks in the natural resources and transport sectors, as well as fuelling concerns of growing risk to the financial system. China's flawed land lease mechanism which gives district and local governments land-use rights also led to disputes between developers and residents over compensation payments. Traditionally, the property and construction sector has been mired in kickbacks to local officials. Shanghai is at the forefront of this latest upcycle, with prices surging 70 per cent between 2001 and 2004 and the city's construction volume accounting for 5 per cent of the country's total. Price increases in Beijing generally lagged but are now picking up in the run-up to the 2008 Olympic Games to be held in the city. This year, prices are expected to grow at least 20 per cent. Industry observers believe each property cycle on the mainland lasts seven to eight years which would indicate a new decline could begin in the post-Games period in 2009. With 'social harmony' a binding theme for the leadership of President Hu Jintao and Premier Wen Jiabao, the construction ministry began calling for more low-cost housing, often ignored by developers who can make bigger margins from luxury buildings. Even in urban areas, only a relatively small middle class can afford a reasonably sized apartment. At the end of March, China had 123 million square metres of vacant property, an increase of 23.8 per cent from a year earlier. Some 69.8 million square metres was residential property. To improve regulation, Beijing has directed that all land sales be conducted through auctions and public tenders. It has also tightened credit to developers and investors and is considering imposing new taxes. At the same time, consideration is being given to financial products such as real estate investment trusts to raise funds to develop the industry. In sum though, local officials and government agencies have to march to Beijing's beat, even if building more high-rises and toll roads have delivered rosy report cards for local cadres. 'Property is a pillar industry. Its healthy development is crucial to the country's economic development,' said Mr Wang. How the central government juggles the industry's growth against the risk of boom and bust, and those of developer and the displaced poor, will be felt for years to come.