You might say that residents of the Chinese city of Pingyao are a little suspicious of newfangled ways. In fact, things have changed so little in Pingyao that inhabitants from the Ming dynasty (1368-1644) would have no problem finding their way around the town's maze of tiny alleyways or the massive, two-lane-wide city walls that completely encircle it.

The wall runs six kilometres around the old fortress city and is the most intact remaining city wall of the 2,000 that once dotted the Chinese empire. Founded 2,700 years ago as a military base, Pingyao was rebuilt in 1370, and much of its architecture today remains typical of that time. Behind the high walls and tiled eaves lining the narrow streets lie timeless family compounds built around leafy central courtyards that are hidden from the road by double wooden gates.

"We have given the world a textbook, a living museum," says Zhao Changben, a retired archaeologist, who grew up in Pingyao.

But that millennia-old legacy is now under threat. In its rush to modernity, China is erasing much of its ancient past, rapidly replacing arching tiled roofs, rustic brick walls and ornate gates with the monotonous tiled buildings that blanket much of modern-day Asia. And no other place in China epitomizes this situation better than Pingyao. Like other historically significant sites across the country, Pingyao is struggling to balance progress and preservation -- and battling ignorance, the lack of enforcement of regulations and the debilitating legacy of five decades under communist rule.

Located about 450 kilometres southwest of Beijing in Shanxi province, Pingyao was added to the list of unique World Heritage sites by the United Nations Educational, Social and Cultural Organization in 1997. "The ancient city of Pingyao is an outstanding example of a Han Chinese city of the Ming and Qing dynasties that has retained all its features to an exceptional degree," the Unesco report stated, "and in doing so provides a remarkable picture of cultural, social, economic and religious development during one of the most seminal periods of Chinese history."

The central problem confronting Pingyao -- and hundreds of smaller sites across China -- is the lack of a central authority responsible for preservation and protection of the country's vast but rapidly disappearing historical legacy. Though the mindless destruction of the Cultural Revolution is long over and China today has a national law to protect historical relics, abuses are rife and enforcement spotty. Indeed, according to one professor at a leading Beijing university who is an authority on traditional Chinese architecture, it remains unclear exactly who has the responsibility to enforce such rules. "Who implements the law?" asks the professor, his voice rising with anger. "No one. No matter how many laws you have, it won't help."

In theory, the State Bureau for Preservation of Cultural Relics holds the chief responsibility, but critics say that body has neither the power nor money to do anything. If the lack of direction and enforcement from Beijing is one side of Pingyao's problems, critics say the city's ancient buildings face more immediate challenges at the local level, where a lust for tourist dollars and a lack of experience with preservation make a potent and potentially disastrous cocktail.

A series of government regulations protects about 400 of Pingyao's residences that are 150 years or older -- one of which was used as the setting for Zhang Yimou's film Raise the Red Lantern. The laws prohibit their owners from building new structures exceeding two storeys and require that renovations along certain streets follow traditional styles. A former government cultural worker who grew up in Pingyao says 30% of the houses here can be saved if the local government acts fast. But he is concerned that because of a lack of experience and training in preservation, many of the structures, some of which are more than eight centuries old, could soon be reduced to piles of wood and bricks.

"Pingyao officials have not done a good job of dealing with tourism and historical relics," he says. "They blindly promote tourism at the expense of history." He alleges that local officials are not well-educated and that they are "too anxious to earn money." "If things continue in this direction, even more of these historical relics will be destroyed," he says.

To make matters worse, the architecture professor alleges, a development plan for Pingyao drawn up by scholars at two prestigious institutions -- Beijing University and the Chinese Academy of Social Sciences -- focused on tourism, including new hotels and restaurants, and not the preservation of historical relics. "Pingyao has cultural value and traces of history and should be preserved," he says. "It can be developed and can earn money, but it's a historical site first, and not a tourist site."

"Impossible, impossible," says Lei Jingming, vice-director of the Pingyao Planning Committee, who flatly rejects such arguments. "These valuable cultural relics were left to us by our ancestors," Lei says. "Only if you properly protect them will there be any value. If you don't do a good job of this, who will come?"

Lei argues that the root of the problem is insufficient funding. "The main question is capital," he says. "Where can we get the funds needed to fix all of the old city's many relics?" Lei moved to Beijing recently to head up the city's new liaison office, aimed at attracting investment and tourism to Pingyao. Tourist arrivals have risen from 100,000 in 1997 to 200,000 last year, and are expected to double again this year. Lei says the city plans to build a three-star hotel outside the main gates, and hopes for an outside investor to fund it.

A taste of things to come can be found in Nanda Street, one of the four main streets targeted for preservation. Many of the old houses on this street have been refurbished and turned into antique shops and restaurants serving the growing number of tourists. The spruced-up buildings sport brightly painted eaves, decorated with flowers, vases, or scenes from folk tales, such as the recently Disneyfied tale of girl-soldier Mulan. But the spanking new look is often jarringly at odds with the crumbling elegance of the rest of the city. The renovated buildings now look shiny and new, bearing a startling resemblance to a movie set.

"If I can turn a historical site into a movie set, why do I need a Pingyao?" asks the Beijing architecture professor. "What do I need with historical sites if I can make a fake one and save money?"

The record of other cities in China which have wrestled with similar challenges is not reassuring. A prominent Pingyao architect tells a salutary tale of Huangsheng, an ancient village in central China he visited three years ago. He describes a city wall as high as that of the imperial capital in Beijing, beautiful memorial archways and other historical relics.

The village, which has hefty earnings from its coal business, dug deep into its pockets for money to make repairs, he says, but in the end, "destroyed it." "They completely rebuilt it, using new materials, and turned something very special into a worthless thing," says the architect. "I cried when I saw what they did."

"So even if you have money, it can be a problem," he continues. "You have money, but no culture. We are very downhearted," he sighs. "We see precious things destroyed, but there is nothing we can do."

Today, Pingyao is a dusty, sleepy, seemingly backward-looking city that time left behind. But for more than 100 years, from 1824 to 1932, Pingyao played a pivotal role in China's economic history, with Shanxi province one of China's early bases of commerce. The many opulent homes that still stand today are a testament to that early prosperity. At its peak in the mid-1800s, 15 wholesale markets operated in the walled city; its streets bustled with shoppers.

Nanda Street, also known as Ming Qing Street, was home of China's first banks, or piaohaos. It was also the first place in China to use cheques rather than cash, making it possible for merchants to travel without worrying about carrying cash or silver ingots. The Rishang Piaohao, or "Sunrise Prosperity Bank," was one of the many banks that proudly advertised, "We remit money all around the world." During Pingyao's heyday, 400 financial houses did an annual turnover of as much as 80 million ounces of silver. Now, the Rishang and other banks have been converted into museums.

Following the Boxer Rebellion, the Empress Dowager Cixi went to Pingyao to ask for loans to pay the indemnity demanded by the eight foreign powers. She returned home to the capital with 200,000 taels of silver from one family alone. But this booming business came to an end at the beginning of the 20th century, when commerce moved to Shanghai and other, more accessible coastal areas, a change today's residents still bemoan.

Some say Pingyao may provide a useful modern-day lesson for China's leaders, who continue to throw good money at failing state enterprises. Notices posted on the walls of the banks-turned-museums point out the analogy: Pingyao's banks suffered from their close ties to officials of the Qing court, who borrowed money, but couldn't repay it -- leading to bankruptcy for many.

(c) 1999 Dow Jones & Company, Inc.