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RENEE MONTAGNE, host:

This is Morning Edition from NPR News. I'm Renee Montagne. One way to measure China's economic might, modernization and can-do spirit has been Shanghai's glittering skyline. That symbol is now masking new problems in China as the property market in that city is on a downward slide. Some believe it's exposing weaknesses in China's economic model. NPR's Louisa Lim reports from Shanghai.

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LOUISA LIM: The view from the world's highest observation deck is astounding. I'm standing here on the 100th floor of the World Financial Center in Shanghai, and peering down through a murky haze, I can see skyscrapers and buildings sprouting in all directions. However, behind these gleaming glass facades, all is not well. Shanghai's real estate is slumping, especially here in the business district of Lujiazui.

Mr. MARK LATHAM (Managing Director, CB Richard Ellis) A global economic slowdown, coupled with a significant amount of new supply that hit the market, did result in rising vacancy factors probably of upwards of 20 percent at this stage.

LIM: Mark Latham, from property agent CB Richard Ellis. Prices are plummeting all over China, and major property-investment transactions here in Shanghai were down 66 percent in the second half of last year. There are two differing schools of thought on how to read what's happening. First, here's Mark Latham with the optimistic view.

Mr. LATHAM: This is another economic dip. It's a down swing in the market. We've gone through them before. We'll come out of these again.

Professor HUANG YASHENG (Political Economy and International Management, Sloan School of Management, Massachusetts Institute of Technology): Future historians are going to look back at the rise of the skyscrapers and draw the conclusion that was going to be the beginning of the warning sign of the problems in the Chinese economy.

LIM: That was Huang Yasheng, from MIT's Sloan School of Management. He argues that the economic crisis is exposing weaknesses in China's interventionist, top-down style of capitalism. His example: the city of Shanghai, known for its sky-high economic growth. But he says official statistics show living standards for average Shanghainese have only shown moderate improvement. This has happened because the state has requisitioned land from its residents at artificially low prices and sold it off at higher market rates, keeping the difference.

Prof. HUANG: The way that China has urbanized is overbuilt, overinvest, without making average people rich. Developers get rich. Government officials get rich. But because the land prices are controlled by the government, the people don't get that much from the building boom.

LIM: But local governments have cashed in. By some estimates, property has accounted for half the revenue of local governments. So, the bursting of the property bubble could leave them cash-strapped. So far, China's unleashed an array of measures to try to revitalize the property market. Developers have been urged to cut back prices, which were too high for many ordinary people. But when they have complied, this has led to fury and protests among home buyers, like 28-year-old David Liu.

Mr. DAVID LIU: They tried to offer some special discount and to stimulate the market.

LIM: I mean, how do you feel about those discounts?

Mr. LIU: That's crazy, you know, totally unfair.

LIM: The discounts have lowered the value of existing homes, in his case, by 20 percent before he's even moved in. He and his wife are accusing the developer, Vanke, which is one of China's largest, of cheating them and cutting corners on quality. Their project is already sold out. But as others stay empty, it's widely expected that some smaller developers will go bankrupt. Independent economist Andy Xie says China's economic recovery depends on reviving the real estate market.

Mr. ANDY XIE (Economist): Unless the property market turns around, it's really, I believe, a waste of time talking about domestic demand. It's just such a huge sector, 10 percent of GDP in terms of investment alone by the developers. I think it's just the key thing for the economy.

LIM: This construction site is ominously silent, with building work here suspended for the moment. That's happening all over the city, with predictions that construction will contract by 30 percent this year as developers feel the pinch. Who knows? This slowdown could even herald an end to that forest of skyscrapers characterized memorably as the architecture of irrational exuberance. Louisa Lim, NPR News, Shanghai.

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