Financial Problems
Before the policy could be implemented, the Center also had to find a way to assuage Hubei's worries about the prospect of losing sizable revenues to Wuhan. Thus the bargaining centered on two basic aspects of the proposed separate listing: assuring Hubei that Wuhan would not become a "province within a province,"[39] and more directly, finding an arrangement that would eliminate Hubei's objections to losing revenue.
Two key sources in the Wuhan city administration described what was at stake. Prior to separation, Wuhan was allowed to keep on average 20 percent of its revenue. Actually, this rate was "returned, not retained," as all revenue was sent to Hubei as the basic governmental accounting unit. Hubei kept 55 percent, (with 5 percent going to other Hubei local governments), sent the Center about 25 percent, and returned 20 percent to Wuhan with clear stipulations in each annual plan as to how the money was to be used.
This was the major sore point in the relations between Wuhan and Hubei. Revenue from the city accounted for about half of Hubei's total income, yet the rate of money returned to Wuhan was far less than the city contributed.
The effects of this treatment by Hubei continue to plague Wuhan, even after separation. During the negotiations leading to separation, the Center calculated the expenses and revenues of Wuhan for the previous five years, 1980 through 1984. It then said Wuhan could keep 19 percent while sending the rest to the Center. Expecting to be given between 30
and 40 percent of its earned revenue, Wuhan objected. The Center finally agreed on a 20 percent retention rate. This was certainly to Hubei's advantage. If Wuhan were able to retain large portions of revenue and thus gain greater independence in key financial resources, the city might prove to be too strong a competitor. However, given the basically incremental nature of decision making at the Center in such instances, Hubei did not need to worry. "The Center has an unwritten rule to decide everything. It bases every decision on the previous few years' experience. The Center doesn't have enough money, so a comparison is a good way. Despite Wuhan's objections, the city was given only what it had been getting from Hubei. That's why Hubei could sit quietly and let the Center handle the problem."[40]
What Hubei did seek was some mechanism that would allow the province not to lose any revenue that had previously come from Wuhan and that would now go directly to the state. The Center agreed to permit the province to count Wuhan's retained portion as part of Hubei's annually planned payments to the Center, meaning that the financial arrangement between all three parties would not really change, except in accounting terms.[41] Separation, then, was something less than complete if one considers the many ways governmental units are interrelated.
This fits with Solinger's findings that the negotiated settlement that paved the way for implementing the central-cities policy saw changes in the accounting procedures but little loss of revenue for Hubei. Based on interviews with Wuhan economists, she found that Hubei got about 100 million yuan per year from the Center, the initial amount the province lost as a result of jihua danlie and decentralization.[42] At the same time, Wuhan gave the Center about 100 million yuan more than Hubei had been doing before the policy was implemented, in large part because of increased economic activity.
Wuhan officials feel cheated by these results, especially after the other cities granted jihua danlie are permitted to retain between 30 and 40 percent of their income. Wuhan had the lowest retention rate of any of the first seven cities (there were fourteen by 1990) given separate listing in the national plan, despite the city's connections at the Center through Li Xiannian. "Wuhan thinks it lost a great deal. It wanted to retain a lot more of its money. The reason it gets the least is because the Center based the amount on the previous five years' experience. This reflects
the low status Wuhan was given by Hubei. The reason for this is the relationship between Wuhan and Hubei. It was very bad for a long long time."[43]
Despite the financial agreement, the Center announced that Wuhan was retaining 28 percent, with 72 percent going to the Center,[44] a point that was not appreciated by the city officials I interviewed. Three city-government sources said Wuhan's retention rate was 20 percent for 1985 through 1987. In 1988 it was decreased to 16.4 percent as part of tax system reform. This lower figure was determined by the Center as part of an incentive to increase production. It has nothing to do with separation, except that Wuhan started the tax reform from a lower retention-rate base.[45] This low retention rate is the key problem in Wuhan's development strategy. "We have a basic capital supply and demand problem. Local financing is very difficult. We have great need for money but a shortage of funds. This is an important reason why Wuhan is what it is."[46]
Despite the financial shell game and Wuhan's relatively low retention rate, the city benefited under jihua danlie because it could determine how to spend its money rather than getting approval from Hubei.[47] For example, Wuhan is now planning construction of a new airport in Tianhe, on the western outskirts of the city. In addition, Wuhan also gained the right to approve foreign investment and import projects up to U.S. $5 million, the same authority as Hubei. Further, city export revenues that had accrued to Hubei foreign trade corporations or were controlled by Hubei's foreign trade apparatus are now controlled by Wuhan's foreign trade organization. In 1984 total provincial revenues from exports was 1.46 billion yuan, of which 17.53 percent, or 256,320,000 yuan, came from Wuhan enterprises. In 1985, the first year that revenue went to Wuhan, the city's export income had increased by 16 percent, to 299,230,000 yuan, which accounted for 14.81 percent of total provincial export revenue.[48] Wuhan officials put the 1985 figure slightly higher, at 333,130,000 yuan.[49]