From July 1st, a 50-year old habit will be kicked. Zhu Rongji, China's new prime minister, insists that the state will no longer supply flats at peppercorn rates to the six million odd new entrants each year to the state-sector workforce. Workers will be encouraged to buy their own lost-cost housing and developers to supply it.

Without waiting for central-government authority, local governments and state enterprises, burdened with social welfare costs, have already begun a spontaneous privatisation of housing. Some see creating a nation of house owners as China's most revolutionary break yet from communism. Zhu's advisers, though, are only concerned only to see domestic spending on housing showing up soon in the economicstatistics.

Respectable economists think that hop[e quite plausible. After all, China's housing stock is largely decrepit, and the potential for a construction boom driven by privatisation is great. At present, nine-tenths of all homes are and flats are owned by the government, companies and work units. If Chinese communities elsewhere are any guide, residential mortgage loans will prove amazingly safe assets for banks to own. The China Analyst, published by the Bank Credit analyst Research Group in Montreal, says that $80 billion in new spending can be generated by housing reform this year, and $150 billion next. that would be the right stimulus at just the right moment.

But commercial banks are largely unused to-and often suspicious about-lending to home buyers. It will take time to set up systems to handle mortgage payments. Moreover, there is no getting away from the fact that banks' books are chock-a-block with bad loans. As a result of various other factors, the cities moving fastest to privatisetheir housing markets -- Shangai, for instance -- are the ones suffering most from high-end overdevelopement, China's housing reforms may eventually do the economic trick, but not this year. Zhu and his advisers will have to direct their increasingly urgent search elsewhere.

Friendly hostility

With a single market here already and a single currency on the way, Europe's banks are braced for a merger wave. But no matter how much they had talked about consolidation, they were left open-mouthed by a hostile takeover launched on May 25th by one of the continent's more dynamic banks.Generale de Banque, a mid-size Belgian institution, was supposed to be the trophy of Fortis, A Belgo-Dutch financial group. but just as Fortis was preparing to indulge in a little self-congratulation at its annual shareholders' meeting last week, Dutch rival ABN Amro launched an unsolicited offer for Generale.

One of the few hostile takeover attempts in European banking, ABN Amro's move has caused a stir -- and not only byaffronting the Belgian officials who had seen the Fortis-Generale link-up as the last chance to create a Belgian bank big enough to survive in Europe. The deal will also turn ABN Amro into Europe's second-largest commercial bank.

ABN Amro insists that its bid is a friendly one. but its offer -- 10 per cent over what some analysts considered an already generous price offered by Fortis-shows that the Dutch are ready to play for high stakes. As true euro-zealots, ABN Amro's bosses are convinced that a small pack of big universal banks with networks stretching across several countries will dominate European finance after the single currency starts up next January. They have tried to ensure their place in that pack by acquiring foreign banks -- to little avail.

Earlier this year, ABN Amro failed to win Credit Industriel et Commercial, a French bank put up for auction by its government, and recently saw one of the largest Belgian banks, Banque Bruzelles Lambert, snapped up by ING, ABN Amro's bitterest Dutchrival.

The latest battle is far from over. Could it be that this fight will also end in the traditional friendly European way, through a chummy arrangement arrived at in a smoke-filled room?