Bargaining Positions

The enterprise that enjoys the best bargaining position is the one on which the city depends substantially for the supply of scarce inputs for local industry. Steel foundries and rolling and stamping mills, for example, enjoy an excellent bargaining position if they are not located in a major steel center, and if the city has a substantial heavy-manufacturing base. Here the city will be highly dependent upon the firm for the completion of local production plans, and the factory's arguments for favorable treatment and complaints about "objective conditions" carry considerable weight.^[45] When profit rates are low because of a firm's price niche, as for steel mills, such pleas are even harder to resist. In one of the cities I studied, one large metal-fabricating plant, with only a fraction of

its annual production, could supply all the needs of local industry. When the local bureau of material supply needed an urgent shipment of its product for a local enterprise, that firm could use its assistance as leverage in financial negotiations with the city.

Size, however, is not an unalloyed advantage. In another city, a large metal-fabricating plant, relatively profitable and the largest of its kind in the country, turned out a product urgently needed throughout the nation. However, local demand for that firm's products was not high: the city had a small industrial base. In fact, this firm was so large that its taxes contributed 25 percent of the city's annual budget. Its size and profitability, however, were too tempting for the city: not only did the firm pay a high adjustment tax, it was also required to turn over 40 percent of its retained profits. The city justified this by arguing that support costs for such a large plant were a great burden for the relatively poor city. Whether this was true, I could not tell, but the manager of the firm complained at length.^[46]

These cases illustrate the vagaries of size and dependence as an advantage for the firm. If the firm is large, is relatively unprofitable, and is a crucial supplier for local industry, it will consistently obtain the most favorable of financial conditions. If, however, it is large, is relatively profitable, and supplies national rather than local industry, it can be preyed upon as a cash cow for the local budget. The only recourse a firm in this situation will have is to appeal to the relevant ministry, and perhaps even to the state planning commission, to bring pressures upon local officials. I suspect that in this last example the matter could only be resolved if pressure from central agencies was accompanied by a concession in the revenue-sharing agreement between the finance ministry and the city.^[47]

National priorities also appear to affect bargaining positions of enterprises, although to what degree I cannot measure. While objective conditions are often difficult to separate from subjective ones, the price niches of most sectors are relatively well known. Reform plans at the national level specify certain sectors as suffering from distorted prices, and others as having an unfair advantage. If you plead "objective conditions" to gain favorable treatment, your task is made easier if you are in a sector that does suffer from the price system. If you are not in such a position, you may be in a sector—such as most machine-building industries—that is experiencing rising materials costs but steady product prices. Central policy mandates that these firms "absorb" (xiaohua ) new costs through

increased efficiency. Officials will be less immediately attentive to pleas from these firms, unless there are additional objective conditions that affect them.

Whether they are profitable or not, some sectors are designated in each city as "key points" for local development. Sometimes these are determined by long-standing local needs; in other cases, they may represent a response to the priorities of the national five-year plan. It was evident in some cities that certain sectors—especially electronics and the computer industry—were receiving preferential treatment as a matter of both local and national policy, relatively independently of their profitability. As new growing sectors, they were being given favorable conditions for rapid growth.

On the other hand, unneeded industries perennially operating in the red will be gradually phased out. In Beijing in 1986 such a sector comprised the small, antiquated, and unprofitable chemical-fertilizer plants that could not sell their poor-quality products. The city had for several years been phasing out this sector. Heavy-industry plants in the city center were receiving the same treatment that year because the city had a beautification plan that sought to relocate polluting firms in the suburbs.