Chinese build on Thatcher revolution: Teresa Poole in Chengdu discovers the first shoots of a boom in ownership which owes more to capitalism than the 'iron rice bowl'

THERE is a small corner of Chengdu whose heart belongs to Florida. Between the palm trees, tennis courts, cut grass lawns and swimming pool, nestle the growing number of imposing, detached houses (priced around pounds 125,000) that make up the Orchard Villas development.

Phase One sold out before it was completed, one-third of the houses and flats (a bit cheaper, starting at pounds 50,000) purchased by successful mainland Chinese businessmen. Phase Two, with twice as many units and bigger houses, has felt the impact of the summer economic clampdown, but is still proving popular with foreign businessmen and overseas Chinese buyers.

'It's the largest, best and most expensive residential development in Chengdu,' said Cindy Ge, formerly one of China's poorly paid teachers, and now a sales assistant for the Singaporean-Chinese joint venture real estate company.

Private property ownership is sweeping China. Despite a large number of real estate companies strangled at birth by the austerity drive, the local newspapers in Chengdu are full of adverts for expensive villas and private property developments, most not built yet. But the biggest social revolution is taking place at the bottom end of the market with the drive to encourage public housing tenants to buy their own homes, a policy strangely echoing Baroness Thatcher's council house sales. There are no swimming pools or tennis courts, but 'work unit' houses on offer at knock-down prices.

Wu Xue Gang, at Chengdu's Planning, Economic Research Institution, paid his employers 10,000 yuan ( pounds 850) for his flat, but estimates its true market value at up to 70,000 yuan. For the time being, should he want to sell it, he has first to offer it back to the work unit. But his children can inherit it, and in a few years the properties will be saleable on the open market.

Thousands of people in Chengdu have bought their own work unit homes, something far removed from the pre-reform 'iron rice bowl' system under which work units provided accommodation for life at peppercorn rents as low as 10 yuan (80p) a month. Chengdu, the capital of Sichuan province, in western China, has so far raised 600m yuan from selling public housing, said Mr Wu.

China's property market says much about the country's economic predicament today. At one end of the market, massive over-investment in speculative luxury properties, both residential and office, drained public coffers and was one of the main reasons for the crackdown on bank lending in the summer. Along the Chengdu airport road, for instance, on the same stretch as Orchard Villas, one huge plot after another is walled off, but encloses just grass, usually with a large billboard sign offering a now fantasy picture of private villas and high-rise flats that have yet to sink foundations. More than 100 newly registered Chengdu property companies never started operating because of the austerity measures. Even Orchard Villas has delayed completion of Phase Three. In China, some 50m square metres of new housing remains unsold, too expensive or inconveniently sited in the rush to build.

At the other end of the market, there is a different problem: how to house China's growing urban population. The state can no longer afford to build and maintain mass public housing if it is only receiving low rents. People are also demanding a higher standard of accommodation, and more space. Meanwhile, cities are inundated with the millions of rural workers who float into town looking for temporary work; without city registration papers they do not qualify for public housing, but they have to live somewhere.

The answer is supposed to be wide-ranging housing reforms. The theory dates back to 1980 when Deng Xiaoping announced 'downtown residents can buy houses individually, or build houses themselves'. New and old houses could be sold to raise revenue to fund new buildings. Rents would slowly rise to realistic levels, which would also increase the attractions of buying. It was revolutionary stuff.

According to Zhai Min He, deputy director of Sichuan's Provincial Planning Commission: 'The work unit housing is a kind of welfare. So we want to change this into the commodity market through gradual housing reform.' Rents for public housing have recently quadrupled in Chengdu, up from a fraction of a penny per square metre. Last month's Chinese Communist Party plenum concluded: 'We should accelerate reform of the urban housing system, control the land price for housing and promote the commercialisation of housing and the development of housing construction.'

There is a huge shortage of housing; China's 200 million urban dwellers have an average living area each equivalent to a room 10ft by 6ft. The Construction Minister, Hou Jie, estimates that by 2000, China needs to build 1.35bn square metres of housing and renovate another 30m square metres of old housing.

So an edict has gone out that public housing must from now on be sold for more realistic prices compared with the early giveaway prices. The government will allow people to pay in monthly instalments and the People's Construction Bank will start extending loans that sound very like mortgages. Prices will rise to perhaps 30,000 yuan ( pounds 2,500) for a two-roomed apartment. This is still less than private accommodation: a recent Real Estate Trade Fair in Peking was offering residential property for 7,000 yuan per square metre.

It is those who are entering China's workforce, but for whom work unit housing will no longer be available, who stand to lose out - no chance to buy their subsidised homes or to afford private property. This means turning to another new phenomenon, the freelance landlord. Rental of private property is becoming popular, but prices are 'extremely chaotic', said a recent survey. According to Chinese press reports, canny workers are buying their city-centre work unit homes. They then rent out the property to private tenants for much more than their measly state enterprise salaries, and live off their property.