By Lucy Hornby and Langi Chiang
MENGTOUGOU, China (Reuters) - One day last summer, the man slated to become China's next premier strolled through a run-down alley between cramped brick huts and then toured a construction site a few miles away where brightly painted tower blocks promised new homes for the country's poor.
The contrasting neighborhoods, both in Beijing's poor, mining region of Mengtougou, embody the affordable housing policy overseen by Vice Premier Li Keqiang, who is expected to replace Premier Wen Jiabao in an upcoming leadership handover.
Affordable housing - and how to pay for it - will be one of the defining challenges of the next leadership as it tries to deal with the high housing prices that are one of the greatest sources of discontent in today's China.
Li's personal involvement hasn't resolved all of the problems of a program fundamental to the Communist Party's claim on power, but it gives some insight into the broader issues he would have to deal with as premier.
Chinese leaders generally keep their cards close to their chest, but Li's long association with affordable housing suggests a populist leadership style even if his policy preferences remain unknown.
His visits to Mengtougou are helping create an image of a politician in the mode of current Premier Wen, who is often portrayed in media as shedding tears over the plight of China's poor.
"Li has been trying to establish himself as a Wen Jiabao-like populist who looks after the disadvantaged," said David Kelly, who follows elite politics closely for Beijing-based consultancy, China Policy.
Li says he cried on his first visit to a shanty town in frigid Liaoning Province in northeast China eight years ago -- a moment that state media now evokes to show his long association with the cause.
During that 2004 visit as a newly-appointed party secretary in Northeast China, Li promised to help laid-off miners in the blighted city of Fushun. Within a year, 13 new residential housing blocks sprang up to replace the ramshackle slum - an initiative that is now portrayed as a defining moment in China's affordable housing policy.
"This was Li Keqiang's contribution to China's economic development, and to the development of society," said Meng Xiaosu, a former classmate of Li's, who helped draft China's housing reforms in the 1990s.
"He saw the workers in impoverished housing conditions. It was just like the Industrial Revolution-era England that we just saw during the London Olympics opening ceremony."
MAKING HOUSING AFFORDABLE
While the local issue in 2004 was basic housing in an economically depressed area, the national policy now aims to ease discontent over the high price of buying a home.
Average urban disposable income is just 21,810 yuan ($3,500) a year, but prime apartments sell for millions of yuan.
The program being championed by Li aims to build 36 million units between 2010 and 2015, at an estimated cost of $800 billion. Through August, China had built just over 4 million such homes in 2012 against a full-year target of 5 million.
However, critics say the program is a mish-mash of initiatives, uneven building standards and poor planning, issues often highlighted in Chinese media reports.
Targets are missed, scrapped and re-set, leaving pledges to the poor in places like Mengtougou -- a hilly county pocked with depleted coal mines -- ringing hollow.
Some of these issues, such as missed targets, were apparent during a visit to the area by Reuters. Other criticisms, such as shoddy construction and how well-connected people are able to jump to the top of the waiting list, were not in evidence.
The 144-tower complex Li visited last year is designed to house 40,000 people resettled from Mengtougou's mining villages and squatter towns. Today, construction is still underway at most blocks.
New residents complained that local authorities razed their former homes to meet relocation quotas and free up land long before their new units were completed. That left families to bounce between expensive temporary rentals for as long as three years.
Children have to commute for miles to their former schools, hospitals aren't built yet and extended families crowd into tiny rooms, awaiting the completion of apartments they were promised.
Finished buildings are brightly painted and roses bloom in the courtyards. For many, the new apartments provide a higher living standard than their former rooms, which lacked heating or plumbing.
"The biggest improvement is that I do not have to go to a public toilet in cold winter nights and that I do not have to cook with coal," said 80-year-old Zhou Shu, proudly showing off the gas cooker in her new 40-square-metre apartment.
Under the affordable housing program, Beijing gives construction targets to regional authorities each year.
To meet targets, some local authorities simply reclassify homes built for government employees or state-owned enterprises as part of the affordable housing program.
A Reuters visit to Shijiazhuang, a city southwest of Beijing, found that a number of apartment units labeled "affordable housing" were actually factory or teachers' dormitories.
In other cases, developers secured permits for luxury housing projects by including a few "affordable" units.
A middle-income city of 10 million people, including satellite towns, Shijiazhuang is one of the few to have published a public list of its affordable housing projects.
Few topics get Chinese as riled up as property. The tension is particularly acute since many have gotten rich by flipping property in the 15 years since housing reform first began.
During Wen's decade as premier, average home prices rocketed 10-fold, dramatically widening a wealth gap the Party is ideologically impelled to close.
Meanwhile, the 230 million migrants looking for work in densely crowded cities cram into factory compounds or in dingy dwellings lacking basic facilities like indoor plumbing. Others stay in dormitories on construction sites, ironically building luxury apartments that speculators never live in.
Wen promised to bring housing costs down to an undefined "reasonable level" - a move many economists see as a throw-back to the era of top-down planning controls. His lending restraints have weighed on economic growth, setting it on course to hit a 13-year low this year, but have done little to dent property prices.
Beijing refuses to relax the property curbs, in place for nearly three years, for fear of unleashing a sudden price surge, even as it tries other measures to lift economic growth.
Property investment generates about half of the country's economic output and directly affects 40 industries.
"Li has been behind the (affordable housing) program so when he becomes premier there will be a strong mandate to continue," said Arthur Kroeber, managing director of economics consultancy GK Dragonomics in Beijing.
"The question is not the trajectory of the policy but the question of how they will pay for it."
The longer the property curbs remain, the more they drag on not only economic growth, but also the government's plans for subsidized housing.
Cities rely on land sales for most of their revenue. Unable to sell land to property developers because of the curbs, many are running short of funds for other obligations, including paying for the low-income homes in the affordable housing program.
Li's former classmate Meng, who helped draft China housing reforms, advocates freeing up private housing construction to generate land revenues to fund the housing targets.
Li himself has so far sidestepped the question of how the government should define and maintain the "right" property price. He has never publicly aired his own views on the broader curbs, in line with China's tradition of political consensus.
Indeed, some analysts suggest housing is too hot an issue to handle and Li may decide to step back from personally overseeing the program once he is premier.
"As premier he can set priorities. If I were premier, I would choose some easy targets. The housing market isn't easy," said Bo Zhiyue, a political analyst at the East Asian Institute of the National University of Singapore.
"Do you want to raise the price or lower it? Do you want it to crash?"
Li himself is no stranger to hardship or upheaval.
As an 18-year old in March 1974 - two years before the end of the Cultural Revolution - Li was one of tens of thousands forced by Mao Zedong's "sent-down youth" campaign to drop school work, toil on farms and learn from the peasantry.
He was assigned to a work brigade in rice-growing Fengyang County, in eastern China's Anhui Province, where he joined the Communist Party. Over a fifth of Fengyang's population had starved to death 15 years earlier in the disastrous collectivization drive of Mao's Great Leap Forward.
In the late 1970s, shortly after Li left Fengyang, starving farmers started to break free of communist collectives, inspiring Deng Xiaoping's reform to allow farmers to plant their own land.
Chen Xueqin, 70, who lived across a dirt path from Li in Fengyang nearly 40 years ago, remembers his singular focus, while fellow villager Xu Weifang, 78, recalls an introvert who was always reading.
"When he talked it was about work," Chen said.
Today, Li appears more at ease in small groups than in public. Businessmen and academics say they have been impressed with his diligent studies of policy.
A law student at prestigious Peking University in the 1980s, Li was caught up in the fervor of political and economic reform. He helped translate a British book, "The Due Process of Law", into Chinese.
He stayed well within the bounds of Party policy and priorities, even while advocating in his master's thesis mildly reformist ideas for moving manufacturing to country towns and loosening China's restrictive residency system.
Traces of his concern for law and process could be seen in late August, when he began a policy meeting for allocating affordable housing by visiting a neighborhood committee and emphasizing fairness in assigning apartments.
The question for investors and analysts, though, is whether affordable housing demonstrates Li's effectiveness as a policymaker or potential as a game changer in China's consensus-based system.
Li's association with affordable housing has helped his populist credentials. But his track record has few notable policy achievements, said Bo, the political analyst.
For all his reformist leanings at university, Li shows the imprint of three decades within a hierarchical party structure.
"When Li speaks about housing matters, it's about giving directions and issuing directives. Li shows himself to be in command, well-versed and deeply briefed," said Beijing-based political analyst Russell Leigh Moses.
"At the same time, it's apparent that he expects Beijing's instructions to be carried out fully. In that respect, Li continues the new tradition of seeking to centralize political authority and policy-making in China."
(Additional reporting by John Ruwitch in Fengyang; Editing by Nick Edwards and Neil Fullick)
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