Bubbling Anger
A Grilling by Security Agents

SHENZHEN, China -- Zou Tao has become an unlikely hero in this profit-driven city of half-built apartment complexes and luxury villas: He is calling for a boycott of the real-estate market.

It is a daring grass-roots campaign, designed to tamp down overheated property prices, that he says has gotten him in trouble with police and attracted threats -- but also the backing of people across the country.

Since he posted an open letter on his Internet blog in April urging Shenzhen residents to stop buying property, Mr. Zou says, he has been deluged with more than 150,000 pledges of support nationwide. The 32-year-old golf-equipment dealer has evidently tapped into a deep resentment against powerful real-estate developers and their local-government backers. They have helped push prices so high that many city residents can't afford to buy, even while numerous units held by speculators remain empty.

"Millions of Chinese citizens stand behind you," read one message that lit up Mr. Zou's cellphone.

His attack on Shenzhen's property barons says much about a mood of defiance, when it comes to housing, that is sweeping China's normally apolitical middle class. Soaring property prices are widening social divisions in what is already one of the most unequal societies on earth. The average cost of a new apartment in Shenzhen has shot up to about $125,000, the equal of 10 years' salary for a college-educated professional there.

The excesses of a real-estate industry that is focused on the top end of the market have also raised the risk of a property bubble in some big cities, from Shenzhen on the southern coast of China to Shanghai and Beijing farther north.

Around the country, local governments sometimes face violent protests from peasants whose farms have been gobbled up by voraciously expanding cities. Tension is simmering among inner-city workers whose homes are bulldozed to make way for high rises. Now, anger is building among the very group that stood to benefit most from China's warp-speed development: the aspiring middle class, where so many are being priced out.

Behind the surge lie contradictory priorities that arose over two decades of fast growth. Leaders in Beijing, fearful of the social unrest income disparities can cause, are eager to develop affordable mass housing. Yet city governments, competing with one another to expand their economies and build infrastructure, rely heavily on land sales to developers and taxes on expensive property. Their interest is to maximize profits.

The upshot is backing for Mr. Zou's boycott campaign from people like David Huang, a 32-year-old manager at a high-tech factory in Shenzhen.

Mr. Huang and his wife have been saving for years to buy a home in which to raise their son, now 7. At the end of last year, they had enough for a deposit on a three-bedroom apartment. But Mr. Huang says he got busy at work and put off the paperwork. His delay proved costly. Since January, he says, pointing a finger toward the ceiling of a Shenzhen coffee shop, the price has zoomed by 40%.

How could prices keep soaring at the same time as supply is? "It's all speculation and manipulation," says Mr. Huang, who continues to rent. "If developers want to make a reasonable profit, I can take that. But this is out of control."

Those who do buy include a cross section of the affluent, many of whom are evidently speculators. They include prosperous ethnic Chinese from Taiwan and Hong Kong, managers at foreign-owned enterprises, and urban yuppies who got in when prices were affordable and are borrowing to buy more. Many of these buyers appear confident that foreign companies will continue to pour into China's big cities, and expatriates will sop up the many still-empty apartments. Kenny Tse, a real-estate analyst for Morgan Stanley in Hong Kong, estimates that 25% to 40% of the buyers of new urban apartments pay cash.

But for Mr. Huang to buy, he would have to spend half of his $800 monthly salary on the mortgage. That would be impossible, he says, given how much he must save to protect himself against medical and other emergencies in a society that has only a flimsy social safety net. A mortgage of the size needed to buy, he says, would "mean I can't lose my job. It means I can't get sick."

For many years under China's socialist system, private home ownership was frowned on. The Communists seized all private property, and employers provided workers with subsidized housing, the rent a pittance. But in 1995, China's leaders launched a privatization experiment in Guangdong, the province surrounding Shenzhen on China's southern coast. There, the provincial government authorized individual state-run enterprises to sell off their housing stock inexpensively to their workers. That program was later rolled out around the country, creating the beginnings of a private housing market.

At the same time, Beijing encouraged the growth of mortgage lending, which spurred construction of more private housing. Besides easing the burden on factories, authorities hoped this program would fuel the expansion of cities as economic engines and support an array of industries, from home furnishings to financial services.

The ensuing building boom has reverberated through the global economy. Partly to fuel its pell-mell real-estate construction, China consumes vast amounts of steel, copper and cement, inflating global commodity prices. Meanwhile, its trade surpluses leave it awash in cash that state banks are all to eager to lend -- further stimulating both the building and the buying of housing. And if credit weren't enough to steer investors into housing, they face a paucity of other places for their cash, what with bank deposit rates fixed at 2.25%.

In one gauge of the vigor of the housing market, Ikea has opened a superstore in Beijing that is second in size only to its flagship store in Sweden.

But it is unclear how sustainable this boom is. Some economists warn that Chinese cities are becoming so overbuilt they face a price collapse. The more optimistic dismiss the concern, noting that annual house-price increases have been roughly tracking double-digit rises in urban salaries over the past several years.

Making it harder to know who is right: China lacks many of the detailed housing statistics common in the West, such as rates of vacancies, inventories and resale prices. The lack of data leaves prospective buyers at loss when faced with a hard sell from buyers -- and may keep the developers, themselves, from sensing the extent of their overbuilding.

Vacancy estimates for new residential buildings in Shanghai run as high as 25% -- yet about 250,000 new apartments flood the market each year, official figures show. In Shanghai's suburbs, the surplus has begun to cool prices, which after a run-up are off 25% in the past year. In Beijing, meanwhile, property prices are soaring ahead of the 2008 Olympics. But rents on luxury homes there are falling, suggesting that prices are supported more by speculation than real demand.

"It's going to turn bad," predicts Peter Churchouse, who runs the Lim Asia Alternative Real Estate fund in Hong Kong.

A property bust, potentially far bigger than one that struck in the late 1990s, could batter China's economy. Investment in real estate is likely to approach 10% of gross domestic product this year. The World Bank estimates that 20% to 30% of lending by China's big state banks goes to real estate. Serious trouble in housing could bury them in bad loans.

The central government has taken steps to head off such a scenario. Last month, it announced a ban on new villa developments -- walled compounds of townhouses and freestanding homes -- as part of a slew of directives aiming at forcing local governments to build more low-cost housing and at driving out speculators. For residential property held less than five years, Beijing imposed a 20% capital-gains tax on profit and a 5.5% levy on the total sales price. It also raised the minimum down payment (to 30% from 20%) and said developers must reserve 70% of new projects for smaller units. But the new rules are full of loopholes, and past efforts by Beijing to rein in prices have all failed.

Benefits from the property boom have flowed unevenly. Of the 20 wealthiest people on the 2005 "China Rich List," compiled by British accountant Rupert Hoogewerf, half are in real estate and all have a net worth of more than $500 million.

But in Beijing, 70% of the population falls beneath the income level needed to buy a home, according to a think tank at Beijing Normal University. Take Price Wu, a 32-year-old software engineer who earns $1,000 a month. His salary ranks him among China's affluent, but he is still looking for an affordable place to buy.

Last year, Mr. Wu says, he lost his girlfriend because he couldn't bring himself to take the financial risk of buying an apartment she insisted they needed before marriage. His ambitions are modest. "I don't want a villa, just a very ordinary apartment will do," he says.

Mr. Wu is weary of the games he says real-estate companies play. "They'll tell you that they only have five apartments left. They say, 'Buy now or they'll all be gone,' " he says.

Mr. Wu doesn't expect that Mr. Zou's boycott campaign will collapse property prices, but hopes that "it might at least stabilize them." He adds: "If the masses get together and show their force, nothing can stand in their way."

In challenging developers, Mr. Zou recognizes he has crossed the line from consumer advocacy to political activism. In China, some of the biggest developers are backed by local governments and work closely with state-owned banks.

A former soldier, Mr. Zou was born in a poor village in the central province of Hunan. He says he grew up with a passion for defending the weak and exploited, and got into importing and exporting golf equipment simply as a way to fund his work as a consumer advocate.

His activism made him a minor celebrity in his adopted home of Shenzhen. Last September, in a public hearing to discuss a controversial proposal to raise parking fees, Mr. Zou turned up with the results of his own online survey showing that 85% of 12,301 people he questioned opposed the increase. In the end, the government slashed the proposed increase.

He wasn't prepared for the resistance to his latest crusade. He says plainclothes security agents seized him at the Shenzhen airport last month as he tried to board a flight to Beijing to present a letter to Premier Wen Jiabao complaining that urban residents have become "house slaves" to developers. The agents grilled him overnight but let him go the next day, he says. He jumped on the first available plane to Beijing and delivered his petition to the State Council, the equivalent of the Chinese cabinet.

Mr. Zou has also run into trouble from other quarters. He just laid off the last of his 15 employees, he says, because he feared for their safety after they received anonymous telephone threats. His downtown office, once bursting with samples of Titleist golf balls and MacGregor sports bags, sits almost empty. A few days ago, he says, somebody apparently cut fine slits in the rear tires of his car. He says a mechanic who noticed the damage told him the rubber could have burst open at high speed and caused a crash.

"A lot of people hate me," Mr. Zou says, slumped in his executive desk chair in a yellow golf shirt and khaki chinos. "They think I'm stealing their fortune."

Li Ning, a marketing manager for Shenzhen's newest office tower, the 52-story Times Square built by Hong Kong-backed Excellence Group, offers a guarded view of Mr. Zou's campaign. "I may not agree with what he says, but I support his right to say it," he says.

Mr. Li puts the blame for Shenzhen's rising property prices in part on the local government, which he says miscalculated the explosive growth of the city from a stretch of farmland in the 1970s. Today, it has 12 million people but is short of public transportation between its heavily built-up downtown and its spacious suburbs. The result is a scramble for living space in the inner city. "Extreme price rises and falls aren't good for us," Mr. Li says. "We want stability."

Shortly after Mr. Zou posted his blog message calling for the boycott, the state-run China Youth Daily newspaper conducted an Internet survey among 9,000 people asking for their reaction: 79.1% of interviewees offered their support.