Prosperity Flounders On Political Shoals

LEADERS in Wuhan are fond of describing their river port as the belly of an economy that stretches across China along the Yangtze River like a colossal dragon. But like the dragon, the vision of Wuhan as a thriving river hub is illusory: It fades with the slender morning mist over the Yangtze, revealing a huddled, ramshackle sprawl isolated from the booming exporting metropolises far down-river on the coast.

China's socialist leaders, eyeing the growing gap in wealth between the coast and hinterlands such as Wuhan, fear unrest will flare between haves and have-nots, Chinese sources say.

``Because we are socialists, we advocate common wealth, and if disparity in income continues to widen too much it will damage the stability of the country,'' says Han Tao, an economist for Hubei, Wuhan's province.

A restlessness is palpable in this gritty, acrid city of steel factories, sometimes called China's Pittsburgh.

The railroad's north-south trunk line and the east-west course of the Yangtze intersect in Wuhan like cross hairs targeting prosperity. But riches have yet to hit the mark.

Wuhan laborers living along these vigorous commercial arteries see fat barges from Shanghai and incessant trains from Guangzhou hauling abundance from the coast. But the well-off life of the coastal workers who make these products remains beyond the grasp of Wuhan people.

Even the governor of Hubei expresses impatience over how his province has yet to copy the presto prosperity of Zhejiang, Guangdong, and other provinces on the sea.

The privileged provinces should pay more taxes to Beijing, which should turn around and give the monies to Hubei and other lagging provinces, Gov. Guo Shuyan says.

``Because it is a rich province, I would hope that Guangdong Province will give more money to the central government,'' Mr. Guo says.

The gap in prosperity between Hubei and nearby seaside provinces expanded last decade after Beijing granted much of the coast special advantages in taxation, foreign trade, and other areas. Per capita income from 1984 to 1989 jumped 130 percent in the East China Sea province of Zhejiang, compared with a 90 percent rise in Hubei.

Beijing hopes in coming years to goad the inland provinces onto the fast track of growth by strengthening central controls over taxation and other areas of the economy.

Ironically, though, classic socialist policies mire Wuhan and other parts of the hinterland in penury, Chinese and foreign economists say. The income gap will widen further unless the state condones market forces and allows commerce and investment to flow freely along the river.

An ancient port on China's longest and busiest waterway, Wuhan illustrates how socialist bureaucrats restrain the economies of central and western China from integrating with the flourishing coast.

Before the 1949 revolution, the Yangtze served as a vital artery for investment and commerce. The river bore raw materials to factories in Shanghai and other seaports and provided the inland with a steady trickle of the wealth controlled by industrial barons on the coast.

The Yangtze still is an important conduit: During the market-oriented reforms of the 1980s, boat traffic linked the provinces of Sichuan, Hubei, Hunan, Jiangxi, and Anhui with the coast more than at any time since the revolution, says Mr. Han.

The number of cooperative projects between Hubei and other provinces jumped sixfold from 1985 to 1990. Total investment in Hubei from other provinces stands at $730 million. Seventy percent of the money has come from the coast, according to Han. Much of the investment is a result of the burgeoning of river trade that occurred under reform, he says. [See story, right.]

Nevertheless, the Yangtze today is not a leading force of national economic integration like the Rhine and Mississippi rivers have been for their lands, Chinese and foreign economists say. The river is just another item for economic planning, not a fast track for the market. Bureaucrats, not the river-borne impulses of supply and demand, govern enterprises.

Now Beijing hopes to restore the links to inland provinces by building a free port among the rice paddies and dilapidated buildings outside Shanghai. The leadership reckons that the Pudong New Area of Shanghai, with foreign bank branches and high-tech industry, will serve as a tug for growth, hauling inland areas toward prosperity.

But Chinese and foreign economists have their doubts.

``It will take a long time,'' Han says.

While promoting Pudong, Beijing has increased its controls on investment and economic activity that could hurt the hinterland. Central leaders hope a new system of tax sharing with the provinces will revive state controls over taxation and reduce a debilitating fiscal deficit.

Some coastal provinces currently hand over a fixed sum in tax revenues to the state every year. In the next decade, Beijing will try to recover control of the purse strings by requiring provinces to remit a percentage of their total tax revenue, says Lu Baifu, an economist with the State Council, China's Cabinet.

``No matter whether it is in the point of view of economics, politics, social stability, or national unity, it is necessary to moderately increase the power of the central government over the economy,'' says Mr. Lu. ``It is with this in mind that we have put forward the tax-sharing system.''

But Chinese and foreign economists say that Beijing is likely to waste much of the new revenue by using it to bail out the country's thousands of foundering state enterprises.

At the local level, bureaucrats have hindered the integration of the Yangtze Valley and rapid development of inland provinces by erecting barriers to exports of scarce materials and imports of competitive goods.

The protectionism thwarts areas like Shanghai from selling manufactured goods inland and buying materials from these backward areas. Instead, coastal producers turn to markets overseas. And export-oriented joint ventures with foreign investors have remained clustered in coastal ``free enterprise zones.''

The obstacles ``certainly prevent booms in one area from flowing into other areas,'' says Harvard University economist Dwight Perkins.

On a more basic level, the overburdened transport system also hampers economic links between regions. The railways, China's economic lifeline, constantly run far beyond capacity.

Basically, the heavy hand of central planning has repressed close-knit growth along the Yangtze more than any other force, the economists say.

``The more you have a bureaucratic system, the more you fall back on the bureaucracy for decisions,'' Mr. Perkins says. ``The Chinese bureaucracy is broken up into provincial and lower level units that don't cooperate much ... that is a bigger barrier than the actual formal barriers to trade.''