Reason
November 1992











Taking Care of Business
by Bretigne Shaffer







"The Shanghai government is cracking down on the black market in goldfish, along with other illicit commerce."


Two years ago, the towering neon signs that illuminate Nanjing Road were not here. Neither were the phone booths featuring Sprint and USA Direct international service. Careful observers will note that the spittoons that lined the Bund five years ago have been filled in; posters now warn that spitting is socially unacceptable. (A sign just outside the city reads: "Pay Attention to Sanitation; Build Socialist Civilization!") Even the infamous Long Bar - a bastion for foreign journalists throughout the turmoil of pre-1949 Shanghai - is long gone, replaced by the ever-inviting plastic visage of Colonel Sanders.

One of the biggest complaints coming from Shanghai residents these days is that the city is becoming too commercial. "Everyone is too concerned with making money," laments a young university student.

Capitalism is OK again in China, ever since Deng Xiaoping's visit to the southern Special Economic Zones in January. The visit gave official blessing to the economic reform movement and kicked off a wave of pro-reform and open-door rhetoric. Pro-market speeches, articles, and proclamations are more prevalent now than at any time in the last five years.

Actually implementing the rhetoric, however, remains a slow and painful process. While the country's massive bureaucracy is gradually becoming more flexible, particularly in the south, it still presents a formidable obstacle for both locals and foreigners. This is true even in Shanghai, where reformist former Mayor Zhu Rongji decided he would recreate the economic miracle of the south. Greedy bureaucrats, propped up by a pervasive and inefficient system, are chasing away the very investment political leaders seek to revitalize their city.

Shanghai has had a long relationship with parasitic officials. After 1949, the once-bustling commercial center of China was reduced to a cash cow by the central government's policy of directing raw materials to the city's state-owned factories and selling the output at inflated prices. Even in the early 1980s, when China's economic reform movement began, Shanghai was remitting over 90 percent of its municipal revenue to Beijing.

The government was also quick to squash private enterprise. In 1952, three years after the Communists took power, some 350,000 Shanghainese were self-employed. By 1962, that number had dropped to 90,000, and by 1970, it was less than 8,000.

Now that figure is on the rise again. City officials have adopted a more liberal attitude toward small private businesses (with the emphasis on small), and official estimates put their number at "over 10,000." The actual figure is probably a lot higher, since much business activity occurs unofficially, on gray or black markets.

Everyone in Shanghai seems to have some business concern going. Students ask if foreigners will sell art for them in Hong Kong, shoe repairmen spread their wares on every other street corner, and small restaurants - often in what appear to be family living rooms - light up the side streets with their own version of Nanjing Road's neon: Christmas-tree lights strung across their entryways.

Service here contrasts sharply with what passed for service in the state-run restaurants that dominated the city a few years ago. These restaurants are open until the wee hours of the morning, and the owners will scramble around in their kitchens to find the nearest match to what the customer wants. This is a far cry from the indifferent " mei you" ("there isn't any") that was once widely believed to be the mating call of the city's restaurant staff.

A young waiter in one such restaurant, a slightly refurbished old house, says he makes 250 renminbi ($45.75) a month at his job. But he wears a "Shanghai Hotboy" hairdo that must have cost at least 30 renminbi ($5.49) and is up to date on the latest styles and pop stars from Hong Kong and Guangzhou. Many in the new (more accurately, revived) entrepreneurial class hold down more than one job and have several businesses going. There is no way to estimate average earnings, say observers, since so much income goes unreported.

Residents are also benefiting from the stock exchange, which officially opened a year and a half ago. According to a local investor, one of the most active stocks is that of the Yu Yuan Tea Gardens, a popular tourist attraction. Since its listing in December 1990, Yu Yuan's price has moved from 100 renminbi ($10.30) to 4,000 renminbi ($732) per share. Turnover on the Shanghai Stock Exchange reached nearly $2.3 billion in the first year of trading and had already topped that in the first four months of 1992.

Such growth has officials biting their nails: They live in constant terror of a downswing, and their economic doctrine preaches against instability and "speculation." On the other hand, they are well aware that the status they seek for their city demands such trappings as an international-style stock market.

Since April 1990, when Beijing approved plans to develop the 350-square-kilometer Pudong New Area near Shanghai as an investment zone, the central government has committed $6.5 billion to the city. In its drive to recreate the economic miracle of Hong Kong and southern China, the Shanghai government is beginning a massive development of the city's ailing infrastructure and is trying to attract foreign investment to pay for it. The Pudong New Area is supposed to be an investment haven, with incentives such as lower taxes, duty-free importing for materials to be used in export goods, and the right to lease land for up to 70 years.

The incentive package, however, does not offer anything that is not available in other investment zones around the country - many of which already have their own streets. Pudong, which lies across the harbor from the developed city center, can best be described as barren. While a few foreigners, and more locals, have set up shop there, the large-scale investment the government is looking for has not materialized.

There are several reasons for this, not least of which is the city government itself. Foreigners based in Shanghai complain of a class of middle-level bureaucrats who seem to delight in making life difficult for everyone else. Numerous approvals are still required to get anything done, in spite of former Mayor Zhu's claims that his "One-Chop-Shop" - the Shanghai Foreign Investment Commission - would eliminate this problem.

Firing workers remains difficult as well, since the "iron rice bowl" mentality, the idea that the state should provide for all needs, remains fixed in the minds of many officials and workers. Nor has the "cash cow" attitude disappeared. For instance, the city requires representative offices of foreign businesses to hire workers through the official state employment agency at exorbitant pay rates - little of which the employees will ever see.

Foreigners are not the only ones squeezed by local officials. The rise in disposable income provides tempting bait for those with power to abuse, and the growing consumer markets provide plenty of opportunity for them to abuse it. For example, keeping goldfish has become a very popular hobby, and quite a black market has developed in the goldfish trade. Fortunately, the Shanghai government is treating this threat to economic stability with the seriousness that it warrants.

One afternoon, on a street corner near a large public park, a group of more than 100 people were openly trading in goldfish, newts, and what appeared to be minnows. It was not long before a small public-security van sped up, and the group scattered. The police were able to apprehend one of the ringleaders, whom they roughed up before shoving into the van. Security officials continued to round up offenders, until the van was filled with tropical-fish kingpins. The door slammed and then abruptly reopened as a policeman stuck his head out long enough to pull a yellow sunfish from a plastic bag and slam it vindictively onto the pavement before the van sped off again.

A witness says she doesn't know whether the goldfish dealers were operating illegally. "But it doesn't matter," she says. "Even if they get a permit and pay the fee, the police will still arrest them and give them a fine. Our government is also very concerned with making money."

Bretigne Shaffer is a free-lance writer based in Hong Kong.

Copyright Reason magazine, 1992