ABSTRACT
Financial extraction from Shanghai was traditionally heavy, and this situation continued through the 1980s. China has long had fiscal unevenness among different sectors and jurisdictions. This chapter estimates implicit subsidies to Shanghai because of fixed low input and high product prices. It finds that Shanghai’s published output could not have been produced with so little capital as was published. China’s political economy is both cellular and extractive; economists Donnithorne and Lardy were both right despite their debate. Irrationally large amounts of capital were put into slow-growth inland areas (especially into the ‘Great Third Front’) even if future external economies there are considered. A table displays the different central government deals with all provinces on revenue retentions and subsidies in the early 1980s. Shanghai acquired a reputation as a “house that follows the law” and a “tree for shaking off money.” The city’s machines were far older than in other Chinese places, and depreciation was not compensated.
