SHENZHEN, China — Sweating in the bright afternoon sun, the men and women stand on the sides of the roads like homeless people clutching wrinkled cardboard signs. Waving the boards, the real estate agents call out to cars zooming by.

"Come take a look."

"You're welcome to visit."

"Over here!"

Surrounding the agents in this upscale neighborhood are vast swaths of empty apartments that just a few months ago were selling at record high prices.

The housing market in this city of 14 million adjacent to Hong Kong is among the first casualties of China's efforts to cool an economy it fears may be overheating.

Faced with surging inflation, shaky loans and a stock market bubble that has grown more than 400 percent in just two years, the Chinese government in recent months has been pulling all policy levers at its disposal to control growth.

China's central bank has raised interest rates five times this year and upped reserve requirements for commercial lenders eight times. Last month, the central planning agency imposed a price freeze on cooking oil, electricity, water and other household essentials to try to stem inflation that is at an 11-year high. Securities regulators in at least one province have issued new rules banning high school and college students from buying shares to rein in speculative stock market investments.

"What China is doing nowadays can be described as crossing a river by fumbling for stones. ... The Chinese government is in fact fumbling for the right path for Chinese economic development," said Huo Deming, an economics professor at Peking University.

The tightening measures are alarming some economists who worry that if China slams on the brakes too fast by using communist controls on what is increasingly a capitalist economy, there could be devastating consequences extending far beyond the real estate market in Shenzhen.

But others contend that to fix imbalances — such as the growing trade surplus and shrinking private consumption as a percentage of GDP — that echo the problems in pre-bust Japan in the 1980s, China needs to be doing even more.

"Tinkering at the edges" is how CLSA chief economist Jim Walker describes what China has done so far. Walker, who has long been warning about weaknesses in the Chinese economy, predicts that efforts to control inflation will ultimately fail next year and the country's double-digit growth in GDP will screech to just 5 percent. "They are walking straight into the Japan problem," he said.

GROWING UNEASE

In an International Monetary Fund study published in September, Jahangir Aziz and Steven Dunaway noted that there is "growing unease within China and abroad about the state of its economy." "Unchecked," the authors argue, "the imbalances will continue to grow and, with them, the rising probability of a large correction."

How China deals with its booming property market is especially critical.

A collapse in housing prices could have a harsh effect on the economy, given that 80 percent of urban homes are owned by private citizens. The value of housing loans awarded in China stands at nearly $450 billion so far this year.

Yi Xianrong, a finance and banking researcher at the Chinese Academy of Social Sciences, a government-affiliated research institute, worries that China's subprime mortgage problem is worse than that in the United States because banking laws are still being written and a credit rating system doesn't exist.

"Both good and bad consumers can get into the real estate market. Many buyers are investors, using forged documents to get money from banks to speculate on the domestic real estate market," Yi said.

In China, mortgages are not pooled and securitized as they are in the United States. That's both good and bad. While it means that the risk is isolated to the lending institutions, banks are the sole source of financing for the vast majority of Chinese corporations. If many people begin defaulting on their mortgages, the banks may have to scale back their lending, which could cripple growth, or may have to ask for a government bailout, which may lead to inflation.

RICHEST CITIES IN CHINA

Until recently, gambling in the real estate market was a popular pastime in Shenzhen, the southern city where China's foray into capitalism began.

Once just occupied by fisherman, Shenzhen was designated a special economic development zone by the Chinese government in 1980. Attracted by the tax breaks, cheap labor and lax environmental controls, companies and people flooded in. The experiment was such a success that China began opening up the rest of its economy.

Today, Shenzhen and its sister, Dongguan, are the richest cities in China. Factories churn out everything from glass panels to toys. Wal-Mart Stores, which sends $18 billion of Chinese goods to the United States each year, maintains its purchasing headquarters here.

By January of this year, new home sales reached the dizzying rate of more than 300 per day, according to the Shenzhen Municipal Bureau of Land Resources and Housing. In Wan Qu, or the Bay Area, a trendy neighborhood next to a bay that overlooks Hong Kong, two-bedroom apartments were being bid up to well over $1 million.

Thanks to lax lending policies by state banks, investors had been able to get low-interest mortgages for second or even third homes with zero down. While China officially requires home buyers to pay 20 to 30 percent of the price of a new home up front, real estate agencies said contracts were manipulated to erase any need for the purchaser to put any money down.

But at the end of this summer, many of China's state-owned banks, a legacy of a command-and-control economy, abruptly stopped issuing new loans, stating they had surpassed their quotas. For the few banks still offering loans, the government increased interest rates and down-payment requirements for second homes. Police raided a number of black-market banks that had been used to finance speculation in the property market, cutting off a major source of financing.

SHENZHEN AN EXCEPTION

By October, daily sales in Shenzhen had dropped as much as 80 percent, to as few as 60 a day. The slowdown was reflected in the falling stocks of publicly listed real estate developers like China Vanke and Poly Real Estate Group.

The dramatic effect of the new government policies on the real estate market in Shenzhen and other large cities like Shanghai and Beijing, however, may be the exception to an economy that continues to grow at a blistering pace.

In China overall, "tightening measures did not stop the surge of broad money supply in September, which could mean mounting macro risk in the economy," Huang Yiping, an analyst with Citigroup in Hong Kong, wrote in a report last week. "It could add fuel to the already high asset prices in both the property market and equity market."

But Peking University's Huo warns that this isn't nearly the end of the government's readjustment of macroeconomic policies.

"China is learning to be a big country," Huo said. Stakeholders should take heart, however, in that while "many policies made by the Chinese government are not in accordance with textbooks, its performance is not bad on the whole."