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TEL AVIV — China and Israel formally launched negotiations on Tuesday on a free-trade agreement that officials said could double commerce between the Asian powerhouse and the Middle East's self-styled "start-up nation".

Israeli Prime Minister Benjamin Netanyahu announced the talks after he met visiting Chinese Vice Premier Liu Yandong. The countries, whose current trade is worth about $8 billion, have held exploratory discussions of the deal since May 2013.

"Cooperation between Israel and China can produce massive results, and we believe that Israel can be the perfect partner," Netanyahu said, according to a statement from his office.

 It quoted Liu as saying Israel was "world-renowned for its innovation" and that China would embark on "great joint projects" with it.

Netanyahu wants to diversify Israel's commercial ties abroad, in partly due to what he has said is a need to reduce the country's dependence on its biggest trading partner, Europe.

Disputes with the European Union (EU) over policy towards the Palestinians, and EU labelling of products by Israeli settlements in occupied territory, discomfit the Netanyahu government. Israel also worries about anti-Jewish incidents in Europe, such as last year's attack on a Paris kosher deli.

Netanyahu's office said the free trade agreement could double bilateral commerce and investment. At Tuesday's meeting, China and Israel also signed 13 cooperation agreements, including in energy and water development, officials said.

A senior Israeli official told Reuters he was optimistic the deal with China could be concluded in about a year. 

Separately, Netanyahu's bid to turn Israel into a natural gas exporter has hit a major snag over a court ruling, but he still has room for manoeuvre, analysts say.

The supreme court on Sunday struck down a complex agreement intended to lead to the development of a large gas field in the Mediterranean.

The case has been closely watched in Israel, with Netanyahu appearing before the judges himself to make his case. 

Israeli newspaper Haaretz called the ruling "one of the most dramatic in court history".

Justices objected to a clause that guaranteed regulations linked to the gas industry would not change for a decade, arguing that it would limit the authority of future governments.

The court, however, suspended its ruling for a year to give the government time to amend the agreement, allowing the deal that took months to negotiate to be salvaged.

"As a matter of fact, the court approved most of the decisions of the government," said Barak Medina, a law professor at Hebrew University.

A consortium led by US energy firm Noble sought the 10-year guarantee as it prepares to invest to develop the Leviathan field, considered among the largest recent gas discoveries.

Netanyahu strongly criticised the ruling, saying it "severely threatens the development of the gas reserves of the state of Israel".

He has also vowed to find other ways to "overcome the severe damage that this curious decision has caused the Israeli economy".

Medina said he was troubled by Netanyahu's attack on the court, especially since it rejected only one part of the agreement. 

He said the reaction likely had more to do with politics than the decision itself, with Netanyahu's opponents strongly against the agreement, which they say overly favours the companies involved.

Noble's reaction was more measured, while at the same time urging a quick resolution.

"The court's ruling, while recognising that timely natural gas development is a matter of strategic national interest for Israel, is disappointing and represents another risk to Leviathan timing," Chief Executive Officer David Stover said in a statement.

"It is now up to the government of Israel to deliver a solution which at least meets the terms of the framework, and to do so quickly," he added.

Anti-trust concerns 

Israel has been trying to extract offshore gas since the discovery of the Tamar and Leviathan fields in 2009 and 2010.

Production has begun in Tamar, but the far larger Leviathan has been hit by a series of delays.

Noble and its Israeli partner Delek have hoped to bring Leviathan online in 2019, providing Israel with a new, large supply of natural gas and allowing it to export.

Development of the field holds important implications for Israel's efforts toward energy independence in a country where the high cost of living is a key political issue.

But exports could also affect diplomacy in a turbulent region where Israel is in constant search of allies.

Netanyahu has pushed hard for the deal, and his manoeuvring to override anti-trust authorities has led to concern.

He used an obscure clause allowing it to be pushed through by the economy minister, a portfolio he holds.

Netanyahu has not said how he intends to move forward now, though he could seek parliament approval for the deal in a bid to give it more legal standing.

Medina said, however, that the court's ruling may allow him to implement necessary changes without parliament.

A way to resolve the issue could be to work out a compensation arrangement for firms involved if regulations change, he added.

It would then return to the court for review.

But while avoiding parliament may be the fastest route, the companies involved may be better off if legislation is passed, said Brenda Shaffer, who has advised the Israeli government on energy issues.

Legislation would prove more durable than a government decision, she added, though Netanyahu's coalition holds only a one-seat majority in parliament.

"It might even be better for the companies because [the deal] probably was not very sustainable without parliament approval," continued Shaffer, a visiting professor at Georgetown University in the United States. "So I think even though the companies are unhappy today, it probably in the long run is in their interest."

TEL AVIV — Israel has introduced one of the world's toughest curbs on bank executives' salaries to try to narrow a big gap between bosses' and workers' pay.

The law was pushed through by Finance Minister Moshe Kahlon, who, ahead of last year's election, ran on a platform of lowering the cost of living and reforming Israel's banks.  It was approved in parliament overnight in a 56-0 vote and will take effect in six months.

Bankers' pay is a sensitive issue in Israel, especially since banks make large profits partly from a wide variety of fees on such things as deposits and withdrawals.

According to parliament's finance committee, salaries at financial firms have grown substantially in recent years and a quarter of the 40 public companies in Israel with the highest pay levels are financial ones.

"There is a moral significance beyond the economic significance in this law," Kahlon said on Tuesday. "It symbolises narrowing pay gaps, solidarity and consideration for the weak."

Under the new law, which also applies to insurance companies, total compensation will be capped at 2.5 million shekels ($652,605) a year, or no more than 44 times the salary of the lowest worker at the company. Anything above the ceiling will be subject to higher taxes.

Senior bankers' compensation has risen to as much as 8 million shekels a year, a big multiple of Israel's average wage of 115,000 shekels.

In Europe, there has been resistance to any mandatory ratio of top pay to bottom ranking pay, while in the United States, under the Dodd-Frank Wall Street Reform, financial firms have to disclose what the ratio is, but there is no binding ratio.

The European Union shareholder rights directive approved last year backed a shareholder vote every three years on pay policies at listed companies, but an attempt to insert a cap on pay was defeated.

Israel's law gained widespread support from the country's governing coalition and opposition but banks were opposed to it. Some commentators called it a populist measure that might lead to higher costs for the public if banks were to pass on any higher taxes.

Israel's Association of Banks said the law could disrupt labour relations in the banking sector, while a spokesman for the group said it would likely appeal to the country's supreme court.

AMMAN — Amman Chamber of Commerce (ACC) President Issa Murad on Tuesday discussed economic bilateral relations with Bahrain's Industry, Commerce and Tourism Minister Zayed R. Al Zayani. During the meeting, held on the sidelines of the World Congress of the World Association of Women entrepreneurs hosted in Bahrain, Murad and Zayani discussed issues of mutual interest, mainly related to economy. 

Zayani highlighted the role of the private sectors in both countries and the "large support" from their governments to achieve national economic interests. 

Moreover, he showcased investment opportunities available in his country and the investment environment that can host different types of projects. 

The Bahraini minister voiced his country's interest in Jordan's experience from the free trade agreement with the US and increasing the volume of exports to it, noting that Bahrain is working with Saudi Arabia on standardisation. 

He also said that Bahrain is seeking to enhance economic relations with different friendly and brotherly countries to benefit from visits and joint events that improve relations and business partnerships. 

Murad expressed Jordan's interest to expand the range of partnership with Bahrain and the possibility of increasing the volume of commercial exchange and national exports, mainly agricultural products, in addition to forming partnerships between business owners in both countries. 

He voiced hope that Bahrain will help Jordan enhance its agricultural exports after the blockage of the Syrian and Iraqi markets, in addition to the delay at the borders as the Kingdom's agricultural exports currently pass through Saudi Arabia. 

He urged speeding up the approval of the Arab customs agreement and activating other ones to facilitate two-way trade and flow of goods, highlighting Egypt's recent conditions on its imports, which could damage Jordanian exports. 

Murad said Jordan is interested in enhancing women's participation in economy and supporting women entrepreneurs, highlighting their role in the ACC. 

The value of exported Jordanian products to Bahrain last year amounted to JD44 million whereas imports' value stood at JD25 million.

Earlier this week, Murad met with an economic delegation that visited Tunisia last month.

During the meeting, Murad said commercial exchange between Jordan and Tunisia is still less than desired as Jordanian exports last year amounted to $20 million and imports totalled $11 million. 

He called for bilateral cooperation in the fields of aerial and naval navigation and for establishing quick aerial and naval routes directly from Amman to Tunisia and increasing flights between the two countries. 

Murad called for constructing a joint information centre to encourage investment and business between the two countries, as well as liaison office in Tunisia to address all obstacles facing Jordanian exports. 

Amman Chamber of Industry (ACI) President Ziad Homsi stressed the importance of benefiting from the Tunisian experience in exporting to European Union countries, which attracts 75 per cent of Tunisian exports. 

Homsi said the ACI signed an agreement with the chambers of industry and trade in Sfax for them to benefit from the training programmes organised by the Euro Jordanian Advanced Business Institute in the field of improving capabilities of workers at small- and medium-sized facilities.

TEL AVIV — Israel's top court on Sunday struck down a landmark deal regulating exploitation of Mediterranean gas reserves, in a major defeat for Prime Minister Benjamin Netanyahu who called the ruling "mystifying".

A panel of supreme court justices said in their ruling that a clause in the plan that prevented it from being changed for a decade was unacceptable.

"We have decided to cancel the gas deal because of the stability clause that would have barred future governments from altering the deal,” they said.

The court however suspended the ruling for a year to enable the parliament to amend the agreement.

Critics of the deal between the Israeli government and a consortium, including US firm Noble Energy, praised the ruling while Netanyahu said it threatened the development of Israel's gas reserves.

Israel's development of its Mediterranean reserves hold serious implications for the country's efforts towards energy independence.

It could also have an impact on regional diplomacy since Israel is expected to export some of its gas.  

Netanyahu, who pushed forward the deal and even appeared at the court to defend it, used an obscure clause to override the anti-trust authorities.

That allowed it to move forward with the approval of the economy minister, a portfolio he holds after the previous one resigned over the gas deal.

'Mystifying ruling'

The court ruling was praised by members of the opposition parties, some of whom were part of the petition against the deal.

Opposition leader and Labour head Isaac Herzog called the court's decision "correct and courageous".

"The government can't bind its hands and judgement," he said on Twitter of the so-called stability clause.

Netanyahu disagreed, saying the decision posed a "severe threat to the development of Israel's gas reserves".

"Israel is perceived as a country with exaggerated legal intervention, in which it is hard to do business," he said in a statement. "Nobody has reason to celebrate the fact the gas might remain in the depth of the sea, and hundreds of billions of shekels won't reach Israeli citizens." 

"We'll find other ways to overcome the severe damage to Israel's economy following this mystifying ruling," the prime minister added.

Justice Minister Ayelet Shaked called the ruling a "crude and unnecessary intervention in a government decision".

"It is unacceptable that the government holds the responsibility to the economy and prosperity of the state, but remains without the necessary authority to take action," she said in a statement.

The deal would now have to return to parliament, where its supporters would face fierce opposition and a narrow majority that might not ensure its passing in a similar format.

The Leviathan consortium, however, remained upbeat on the possibility of moving ahead with the planned development of the reservoir.

"The court in its ruling accepted the entire gas deal except for the stability clause," they said in a statement. "The judges also realise the necessity of regulatory stability and creating conditions to enable the necessary investments to seek and develop gas reservoirs." 

"We call upon the government to swiftly regulate the stability conditions so we can meet the deal's goals, first and foremost developing Leviathan by 2019," it added.

The deal, signed in December with Noble and its Israeli partner Delek, would have regulated the development of the Leviathan field in the eastern Mediterranean, one of the biggest recent natural gas discoveries, in addition to other issues.

The consortium is said to have agreed to invest $1.5 billion to develop the Leviathan field over the next two years. 

Failing to meet the requirement would have allowed the government to back out of a commitment not to alter fiscal and regulatory terms for the gas industry until 2025.

Israel has been trying to extract offshore gas since the discovery of the Tamar and Leviathan fields in 2009 and 2010.

Production has begun in Tamar, but the far larger Leviathan has been hit by a series of delays.

The size of the Leviathan field is estimated at 18.9 trillion cubic feet (535 billion cubic metres, or bcm) of natural gas, along with 34.1 million barrels of condensate.

Noble and Delek also control Tamar, which holds 250 bcm of natural gas, and lies 80 kilometres west of the Israeli port of Haifa. 

Israeli and American energy companies expressed disappointment on Monday over Israel's Supreme Court decision.

David Stover, the chairman of Houston-based Noble Energy, said the ruling was "disappointing".

Critics said the deal gave too much profit to corporations at the public's expense.

After the court scuttled the deal, Netanyahu resolved to "seek other ways to overcome the severe damage that this curious decision has caused the Israeli economy."

Eli Groner, director-general of Netanyahu's office, warned on Army Radio that "we are telling the world that Israel is a place where it is difficult to do business."

Thousands of Israelis have turned out for weekly protests against the gas deal.

On Monday, opposition lawmaker Shelly Yachimovich, a leading critic of Israel's deal with the gas companies, called the court decision "historic and dramatic", and proof that "a smart, aware public can cause justice to prevail".

The Israeli Delek Group called Monday on the government to rework the agreement quickly. In a conference call with investors, a Delek representative said "we don't intend to put things on hold".

CAIRO — Egypt promised tough action to restore growth on Sunday with a government programme that aimed to reduce the budget deficit while protecting the poor as public anger mounts over a deteriorating economy.

Prime Minister Sherif Ismail, reading out a 79-page policy agenda to parliament, said his government would target five to 6 per cent economic growth and push the budget deficit to below 10 per cent by the end of fiscal year 2017-18.

Egypt's economy is currently growing at around 4.2 per cent with a budget deficit of about 11.5 per cent, Ismail indicated.

"It is up to us to take several hard decisions that have long been delayed, [but] any economic steps will be accompanied by the requisite social protections," Ismail said.

He added that the growing population, with the country now 90-million-strong, had strained public services while political instability since the 2011 uprising had hit growth and foreign investment.

The programme promises to introduce a long-delayed value added tax (VAT) and push ahead with reforms to the country's costly subsidies programme. It did not give specifics on how those changes would work.

President Abdul Fattah Al Sisi has pledged to reduce the jobless rate to 10 per cent over the next five years. Unemployment stood at 12.8 per cent in December, according to the government. Analysts believe it may be much higher.

"Sisi, the youth are eating dirt ... Sherif, what has your government done?" protesting students shouted outside the parliament while spreading loaves of subsidised bread on the ground atop their masters and doctoral certificates.

A number of difficult reforms have been delayed, from a VAT that would increase government revenues and a civil service law that would trim the country's public workforce, to an ambitious plan to wean the country off costly energy subsidies that have been scaled back.

Egypt devalued the pound to 8.78 per dollar from 7.73 earlier this month, a move economists said would encourage foreign investment, but which risks hitting the country's poorest through higher inflation, which ran at just over 9.1 per cent in February.

Egypt's parliament will vote on whether to approve the government's policy agenda. If the parliament rejects the programme, it will count as a vote of no confidence against the government. No date has been set for the vote.

Egypt elected its first parliament in more than three years in November. It is dominated by Sisi loyalists.

RIYADH — He's had no salary for six months, he cannot pay his children's school fees and his permit to reside in Saudi Arabia has expired.

But Robert still holds out hope that things might improve for him and thousands of other workers at Saudi Oger Ltd., the once-mighty construction giant led by Lebanon's billionaire former prime minister Saad Hariri.

Delayed receipts from a Saudi government whose oil revenues collapsed over the past two years have left employees of the company struggling to survive while they wait to be paid, Robert and other sources say.

Other contractors are also affected, but sources say problems at the 38-year-old Saudi Oger go deeper than the kingdom's current economic strains.

"Already when I worked at Saudi Oger there were delays in salary payments to local employees," a former staffer indicated. "It seems the situation got worse."

Saudi Oger employs around 50,000 people of various nationalities, from managers to labourers, and Robert noted that the salaries of nearly all have been delayed.

But at six months without a pay cheque, he is among the longest suffering.

"I don't have money," he said. "It's hard."

The veteran employee of Saudi Oger says he has "no choice" but to stay with the firm because he cannot find another job.

Robert, whose name has been changed because he asked for anonymity, said the company promised in a letter that salaries will flow at the end of March.

Poor management blamed 

"It's a desperate situation," a well-informed source said, describing expatriate families facing a similar plight to Robert's.

"They can't pay for the tickets" to even fly home, the source indicated, adding that many senior officers of Saudi Oger support families in Lebanon, meaning remittances to that country will be affected.

He also noted the impact on Saudi Oger's lower-income workers.

The informed source said poor management "is one of the main problems" at Saudi Oger, but this has been compounded by the economic challenges of a kingdom confronting a projected budget deficit of $87 billion this year.

France's embassy, concerned for the many French employees at the company, sent two letters to the firm, which responded with its promise to start paying the salaries.

"The thing is, do they have the funds to keep their promises?" the informed source asked.

"The group's treasury has for a long time been badly run," said a Lebanese businessman who works in the kingdom.

Political tensions 

He added that the plight of the Hariri family company raises two questions: "Will Saudi local banks continue to finance Saudi Oger, and secondly, will the Hariri clan manage to enlist an investor willing to provide new investment?"

The Hariris have been a political and economic force in Lebanon for decades.

Saad Hariri, whose political bloc is close to Saudi Arabia and the West, was catapulted into Lebanese politics 11 years ago after the assassination of his father Rafiq.

Long-standing problems at Saudi Oger peaked as tensions escalated this year between Saudi Arabia and Iran, which back opposing sides in wars in Syria and Yemen.

Tehran also supports Hizbollah, the Shiite militant group leading a powerful Lebanese political bloc in opposition to Hariri's faction.

Riyadh has accused Hizbollah of exerting a "stranglehold" on the Lebanese state.

"If Hariri can prove he is still useful, the Saudis may help him," a Lebanese banker said. "But if not, they won't."

Attempts to reach a Saudi Oger spokesman were unsuccessful.

The company built some of the most grandiose complexes in Riyadh, including the palatial Ritz-Carlton Hotel.

Among its ongoing projects, Saudi Oger's website lists a five-star hotel and office tower along with a monorail in the King Abdullah Financial District.

Cranes perch, unmoving, atop more than two-dozen towers that were nearing completion at the northern Riyadh project.

Robert confirms the financial district is among the stalled Saudi Oger projects but he adds that none have been cancelled.

Most towers in the complex are being built by local construction giant Saudi Binladin Group, which is "also having problems", according to a veteran contractor.

King Salman suspended the Binladin Group from new public contracts after one of its cranes working on a major expansion of the Grand Mosque in Mecca, Islam's holiest site, toppled in September killing at least 109 people.

In a business which is ultimately all tied to the government, construction projects have been "slowed down" and cash "is not coming in on time", the contractor said.

As he waits for his money to arrive, Robert does not have the air of a man who is beaten.

He remains "somewhat positive" the company can take a "new direction", and recalled with pride Saudi Oger's projects like the Ritz-Carlton.

"It was one of the best companies," he said.

ISTANBUL — Six suicide attacks in eight months and a spat with Russia have added to concerns for the Turkish economy as tourists flee, taking billions of dollars in spending elsewhere, and foreign investors skirt the troubled country.

Days after a suspected jihadist blew himself up on a top shopping street in Istanbul, hotels, restaurants and retailers in the city are counting their losses.

Shops and restaurants on Istiklal Street, the usually bustling two-kilometre-long pedestrian artery targeted in the March 19 attack, complain of a sharp drop in business since the bombing.

The attack on Istiklal, the beating heart of Turkey's biggest city, emphasised the security threat after three deadly suicide attacks in the capital Ankara.

While financial markets have so far reacted with relative sangfroid to the terror wave, analysts say the bloodshed is putting strain on Turkey which is already battling high inflation and mid-term economic uncertainty.

"There could be large economic costs from these attacks, particularly in terms of long-investment and the tourism sector," William Jackson, senior emerging markets economist at Capital Economics in London, told AFP.

Tourism hit

Western tourist numbers have slowed since Turkey began to come under sustained attack from jihadists and Kurdish rebels last July.

The industry's headaches worsened when Turkey shot down a Russian jet on its border with Syria in November, nearly eradicating the key annual influx of Russian tourists.

Hikmet Eraslan, chairman of the upmarket Dosso Dossi hotel chain in Istanbul, said he had been forced to halve room prices to try attract visitors.

"We had to let people go to reduce costs. What else can you do? We have to live," Eraslan added.

The recently renovated Golden Age hotel, which lies just a few minutes walk from the scene of Saturday's blast, is also struggling to fill its 180 rooms, only half of which were occupied last week, mainly by Iranians celebrating Persian New Year.

"Our general manager just came back from [the International Tourism Trade Fair] in Berlin. He said no-one wanted to come to Turkey," according to an employee, speaking on condition of anonymity.

Inan Demir, an analyst at Turkey's Finansbank, said he expected tourism revenue to drop under $17 billion in 2016, down from $21 billion in 2015 (3 per cent of gross domestic product), worsening Turkey's already gaping current account deficit and adding to unemployment of over 10 per cent.

Foreign arrivals in January were already down 20 per cent year-on-year.

Investor confidence shaken

Foreign investors, too, are likely to be "much warier about coming to Turkey, both physically and in terms of their portfolio allocations", Demir added, predicting "a significant adverse shock to the Turkish economy".

Further tarnishing the image of the country of 78 million are concerns over the alleged authoritarian drift of President Recep Tayyip Erdogan.

In dramatic scenes earlier this month, the authorities seized Zaman, a opposition newspaper linked to Erdogan's arch-enemy the exiled cleric Fethullah Gulen while the military is battling the rebel Kurdistan Workers Party (PKK) in the southeast.

Capital Economics' Jackson said the crackdown was likely to further dent already declining levels of foreign investment.

"When business and legal decisions appear to be politically motivated it is obviously very concerning for foreign investors because it creates uncertainty," he added.

Yet the economy has also showed signs of resilience, with energy importer Turkey helped by the persistently low price of oil and gas.

Industrial production surprised to the upside with a 5.6 per cent increase in January, while economic confidence rose in March after a three-month decline.

But there are many pitfalls ahead and Finansbank's Demir said he believed investors would be closely watching who replaces Turkey's respected outgoing central bank governor Erdem Basci when his term expires next month.

Erdogan has repeatedly called for interest rates to be lowered, ignoring economists' calls for rates to be hiked to rein in inflation which stood at 8.8 per cent in February.

Amplifying the concerns of markets, the bank pruned a key interest rate by 25 basis points at its latest monetary policy meeting.

For Demir, the bank's failure to raise rates "is illustrative of the impact of politics on macro-economic policy making in Turkey".

The choice of new governor would be a key test of the bank's independence, he said, warning that appointing someone who "plays to the tune of Erdogan's advisors" would likely "change investor sentiment for the worse”.

SHANGHAI — Shanghai unveiled rules last week to cool its housing market, as China seeks to rein-in property speculation in select top-tier cities where prices have raced out of control in recent months.

The regulations require down payments of at least 70 per cent for larger and more expensive housing, and ban developers and real estate agencies lending buyers the money for such payments, according to a Shanghai government statement.

"The new rules in Shanghai are quite strict," said Deng Haozhi, chief analyst at property developer Fineland. "It's a comprehensive policy, which will certainly push down the investment atmosphere."

The moves by Shanghai, China's commercial hub and one of the country's most vibrant property markets, are a departure from most of the rest of the country, where local governments are trying to boost real estate prices after two years in the doldrums.

Home prices have surged in China's first-tier cities after the government moved to stimulate the flagging property market to help boost the slowing economy.

Shanghai's new home prices jumped 20.6 per cent year-on-year in February, according to figures from the central government's National Bureau of Statistics. It lagged only behind the southern city of Shenzhen, which saw a whopping 56.9 per cent year-on-year jump for the month.

A survey by the China Index Academy showed that the average price of a new home in the country's 100 major cities rose 0.6 per cent month-on-month in February to 11,092 yuan ($1,695) per square metre. 

Shenzhen, Beijing and the southern city of Guangzhou have started to crack down on financing sources for down payments, state media reported earlier this month.

Premier Li Keqiang on Thursday pledged to prevent big fluctuations in the property market and promote its "stable and healthy development".

In the Chaoyang district of northeast Beijing, a nondescript wall covered in patriotic posters protects one of the city's most valuable treasures: a dirt field containing nothing but a few scattered trees.

Recently, the block sold for 3.3 billion yuan ($515 million), according to Beijing Municipal Bureau of Land and Resources data, meaning the cost to the developer of each apartment built will be above the price at which nearby homes currently change hands, once a commitment to build a quota of affordable housing is factored in.

"The flour is more expensive than the bread," said Guo Yi, market director at Yahao, a real estate consulting agency in Beijing, using a Chinese proverb to describe how undeveloped land in some prime locations has become more expensive than second-hand apartments. "We see increasing risks."

Such speculative pressure underlines a growing distortion in China's housing market.

While property prices in much of China are still falling, a rebound is under way in the biggest cities, bringing with it the return of land speculation that could stoke another bubble and widening the economic gap between "tier 1" centres and the rest.

In the Chaoyang project, the winning developer, a joint venture between Poly Real Estate Group and Beijing Capital Development, agreed that more than half the housing on the site would be built under a government affordable housing scheme.

The scheme aims to allow more of China's middle and lower income households to share the dream of owning their own home, but also makes the project more expensive for the developer.

Analysts said the 41,964 square metre plot equated to a maximum 117,498 square metres of apartment space, meaning the developer was paying 28,086 yuan per square metre, rising to more than 60,000 yuan per square metre when the cost of building the affordable housing was included.

At that price, the commercial housing to be built on the site would need to be sold for more than 100,000 yuan ($15,600) per square metre, around triple the price of existing homes nearby, for the project to be profitable, analysts said.

Another option would be to try to resell the plot at a profit.

"It sounds crazy to me that prices could reach so high," said a woman surnamed Wang who lives in a nearby affordable housing project. "It just doesn't seem worth it to me."

Beijing's buoyant land market typifies an emerging trend. Leading developers are buying new lots of land in major cities amid a backdrop of improved property sales and a loosening monetary environment.

"Developers are making landgrabs in big cities because everyone thinks first-tier cities are safe," indicated a senior official at a medium-sized listed property company in Beijing, who declined to be identified as he was not authorised to speak to the media. "We are worried about risks of overheating."

On a nationwide basis, house prices posted their first annual rise in 14 months during October, a weighted average gain of 0.1 per cent. On a monthly basis, prices rose 0.2 per cent, official data showed.

Even a modest recovery in a sector that accounts for 15 per cent of the gross domestic product is a welcome boost for an economy heading for its weakest growth in 25 years.

But the gains were largely concentrated in major cities, reflecting an increasingly unbalanced housing recovery.

Prices in Shenzhen rose 39.9 per cent in October from a year earlier, while they were up 10.9 per cent in Shanghai, and 6.5 per cent in Beijing. In monthly terms prices rose in only 27 of 70 cities, however.

Local government revenue from land sales in China's 10 biggest cities rose 24 per cent in October from a year earlier, a private survey showed.

While there are ceilings on land prices, some local governments are auctioning land bundles, land and a commitment to build a set amount of affordable housing, that makes the cost of building non-social housing much higher.

That has the effect of pushing up property prices in major cities, where demand is strong. But outside the top-tier cities, excess supply and a weaker economy are discouraging new construction and investment.

The average residential land prices in first tier cities, including Beijing, Shanghai, Guangzhou and Shenzhen, reached 17,680 yuan per square metre in the third quarter of this year, compared with 2,377 yuan in smaller third tier cities, according to data from China's land ministry.

"Land is more expensive than second-hand houses in some parts of Beijing, but not everywhere, because developers are confident that real estate prices will continue to rise," said a property developer at one of China's state-owned enterprises.

"I wouldn't say the Beijing property market is overheated, it's just warm," he added.