Police allowed the protest to continue for several hours but then forcibly bundled the demonstrators into buses and drove them away.
"No one in the government would agree to hear our grievances," said one man who walked away when the police started to break up the sit-in. Another cried: "What crime have we, the people, committed?"
A petition handed out by the group said: "More than 2,000 people from more than 700 households in Chaoyang District, Nongguangli area, beg the government on our knees to help us powerless common people to move back to our homes which have been sold by real estate developers."
While public demonstrations over unemployment, unpaid wages and housing complaints are now fairly common in provincial cities, this was the biggest public protest to take place in the centre of Peking since the summer of 1989.
The timing and location was embarrassing as all eyes are on China with just 10 days to go before the return of Hong Kong on 1 July.
No one yesterday appeared to have been detained or arrested apart from a number of foreign journalists at the scene.
The protest illustrates the kind of everyday corruption against which ordinary people have little redress.
The protesters were all workers and pensioners from the state-owned Guanghua Wood Materials Factory in south-east Peking. Like most state workers, they had always been provided with "danwei" (work unit) housing, for which the rent would typically have been only pounds 2 a month.
In 1994, under a formal agreement arranged by the district government property bureau, the 2,000 residents of Nongguangli moved out and the Hongyu Real Estate Development company moved in.
The company demolished the old homes and started building new apartment buildings. The contract stated that the residents would return in 1997 to live in two newly constructed high-rise blocks.
This sort of arrangement has become very common during the economic boom of the past five years, enabling a developer to obtain a valuable city location by agreeing to rehouse the old inhabitants in the new flats and sell off the surplus apartments to make a final profit. Vast tracts of old Peking have been demolished in the process.
In this case, the development company, which a Guanghua official said was part-owned by the State Security Ministry, appears to have got greedy.
According to yesterday's protesters, at the end of 1996 it sold off all the apartments in the two blocks in which the old residents were supposed to be rehoused and then "shamelessly" denied it.
The petition demanded that the contract be properly implemented. "Those who make a mistake should correct it, they have intentionally committed a wrong," it said.
The government regularly boasts that ordinary people can take on local government officials and state companies through the courts.
In practice this is difficult. If the Hongyu development company really is connected with state security, it would be impossible.
In this case the residents were so exasperated they took matters into their own hands.
Given the size and location of the demonstration, it is remarkable that the sit-in was allowed to continue as long as it did. With the handover of Hong Kong so close, that part of Peking is crawling with police.
However, even at such a sensitive time, the government does not want to be seen ignoring the grievances of ordinary people, and it would have been loathe to order heavy-handed policing in front of so many foreign reporters.Reuse content