Bottom-up Bargaining

China’s high-speed railway network is one of the largest infrastructure programs in human history. Though today international headlines emphasize the decline in China’s growth—lagging behind the rest of Asia for the first time since 1990—for more than two decades, the central government has been investing vast sums into the country’s public infrastructure. The political processes underlying this government investment—and the causes for drastic regional variation in investment—have remained overwhelmingly underexplored.

In his newly published book Localized Bargaining , Xiao Ma offers a novel theory of intergovernmental bargaining that examines the unfolding of China’s unprecedented high-speed railway program. Drawing on a wealth of in-depth interviews, original data sets, and surveys with local officials, Ma details how the bottom-up bargaining efforts by territorial authorities―whom the central bureaucracies rely on to implement various infrastructure projects―shaped the allocation of investment in the railway system. Demonstrating how localities of different types invoke institutional and extra-institutional sources of bargaining power in their competition for railway stations, Ma’s new book sheds light on how the nation’s massive bureaucracy actually functions.

In this interview, Xiao Ma and political economist Lizhi Liu discuss the politics of mega-projects, the intricacies of localized bargaining, and the broader conclusions to be drawn from railway development.

An interview with Xiao Ma

LIZHI LIU: Your book studies how politics influences the rollout of China’s high-speed railway program—“the largest state-directed infrastructure program in human history.”  Why is it important to study the politics behind such investment initiatives?

XIAO MA: My time as an undergraduate student in Japan coincided with the launching of China’s first high-speed railways. Just as I was observing the extensive use of trains for facilitating everyday life in Japan, projects like the Wuhan-Guangzhou high-speed railway gained significant media attention. I increasingly began to envision how daily travel in China could be transformed with an extensive and integrated transportation system like Japan’s.

Throughout my development as a political scientist, the subject of high-speed railways never really left me. On the contrary, it only gained in importance. The size of China’s high-speed railway project is unprecedented; since 2004, the Chinese government has invested over 10 trillion RMB in railway infrastructure. The operating mileage of high-speed railway in China grew from zero to over 40,000 kilometers in 2021. That’s twice the length of high-speed railway networks in all other countries combined. There hasn’t been such a large government-led investment project in modern human history. 

Because the project is planned and executed by the government, it is fundamentally political. Understanding how governments allocate scarce policy resources is among the key questions of political science. Harold Lasswell once said that “politics is about who gets what, when, and how.” Learning how politics drives the rollout of rail infrastructure can also help us understand the logic behind the allocation of other government-funded projects such as highways, ports, and the electricity grid.

LL: What is the central argument of your book?

XM: I argue that the Chinese central government’s investment in high-speed railways is shaped by the bottom-up bargaining efforts of the territorial governments (e.g., provinces, cities, counties, etc.). This broad model of investment also applies to other types of regional projects allocated by the central government. At a broader level, the theory explains the distributive patterns of various public policies and projects like railways, ports, airports, subways, electricity grids, and so on. These are contrasted with universal policies that affect every jurisdiction, such as interest rates, income taxes, and environmental regulations.

The theory helps explain the allocation of funds that are irreversible. Once the project is delivered, policymakers can hardly withdraw the benefits. Many social policies, such as agricultural subsidies or income supplements, are reversible: policymakers can decide to stop supplying these benefits to the recipients if they choose to do so. These kinds of reversible benefits are commonly seen in patron-client relationships. In the case of projects like railways, policymakers cannot buy off the long-term loyalty of localities. Instead, local governments actively lobby their superiors to get access to funding.

lL: People often conceptualize the Chinese state as monolithic, operating through top-down commands from the center. China scholars have long argued against such claims, and your research contributes towards these arguments. Where does the bargaining power of local governments come from in the Chinese context?

XM: It’s not just a question of central and local governments making decisions; decision-making power is also shared by central government agencies. In the case of the high-speed rail, a number of central government ministries, such as the National Development and Reform Commission, Ministry of Transport, China Railway Corporation, have been involved in approving the project for specific localities. These ministries have different specialties and interests, and they are not always in agreement. 

The need to coordinate consensus among these central bureaucracies presents one entry point for the bargaining of local governments. In fact, the central government tolerates these dynamics in order to acquire information on local conditions. Because China is a very large country, it is very costly to collect information on the demand for government programs. When localities approach the central government for access to particular projects, they are not only letting them know about their needs for resources, but also conveying information on local socioeconomic conditions, such as fiscal capacity, debt burden, and the labor market. Such information is crucial for central policymakers to make effective policy decisions. 

The question then arises: what makes some localities more successful at bargaining than others? In my book, I distinguish between localities with high bargaining power (“cardinals”) and those without bargaining power (“clerics”).

The institutional bargaining power of the “cardinals” comes primarily from their privileged positions within the party state hierarchy. In particular, I focus on an institutional arrangement called “concurrent appointment.” That is the situation in which a local leader simultaneously holds another leadership position at one level above his own rank. For example, the party secretary of Suzhou, a municipality in Jiangsu province, is concurrently also a member of the Jiangsu provincial party standing committee. I argue concurrent appointments empower localities in two ways. First, they give local leaders easier access to central policymakers. Meetings among Chinese bureaucrats follow the rule of reciprocity: an official usually gets to meet with his exact counterpart in rank at another bureaucracy. A local leader with another higher-ranked position gets to meet with higher-level bureaucrats in the central bureaucracies than his peers without such appointments. 

Second, concurrent appointment also gives localities agenda-setting power. When two nearby places compete for a project, a leader with a concurrent appointment can use his position to make decisions in favor of his jurisdiction. In the book, I conduct a quantitative analysis of Chinese provinces and cities and find that controlling for different indicators of socioeconomic development, places with a concurrent appointment enjoy systematic advantages in getting central government approval for high-speed railway stations.

Among Chinese localities without such institutional power (the “clerics”), some use a strategy that I call “consent instability.” In these places, local officials allow mass mobilization from local residents to do their bidding. In the past decades, there were numerous high-speed railway protests across China, where local residents went into the streets to demand a station be built in their city. These protests sent a strong and credible message to the decision-makers at higher levels that if demand was not met, social stability would be challenged. In my case studies of such incidents—for example, the protest demanding a high-speed railway station in Linshui County in Sichuan province in May 2015—such mass mobilizations were successful in winning some kind of concession.

lL: I wonder if you can talk a bit more about “the pressure of the masses” being a source of power for local governments. We know from past research that authoritarian regimes occasionally allow protests to happen as a safety valve to release public anger. Through such protests, a central government can also collect information about citizen preferences. But your research in China points to a fascinating feature of intra-governmental bargaining: local governments tolerate certain protests or even strategically mobilize them to bargain for policy benefits. How does this strategy align with the need to maintain social stability as a “Key Performance Indicator (KPI)”?

XM: That is indeed a fine line for local officials to walk. Social stability is among the top priorities for local officials; there are studies showing that officials who failed at maintaining social stability were “vetoed” for career advancement later on, no matter how well they performed in other realms of governance. Chinese local officials often spare no efforts in nipping mass mobilizations in the bud, and that’s why “consent instability” stands out as an unusual phenomenon in China.

There are a number of ways that local officials relying on this strategy can avoid facing consequences. First, local officials don’t bear primary responsibility for social mobilizations—their superiors who are unwilling to make policy concessions do. So, the pressure is actually on those bureaucrats who have the power to change the disputed policies. If local officials can show a good work ethic by communicating with their superiors in a timely manner, maintaining order, and avoiding further escalation, there is not much they can be blamed for. Second, local officials do not publicly associate themselves with the mobilizations. In many cases, the forces organizing the mobilization are local business associations. So, in public, they appeared to be spontaneous events organized by society. 

We also know that Chinese entrepreneurs are highly dependent on the state, and they share all kinds of formal and informal connections with local governments. These business associations, as I argue in the book, play the role of intermediaries that allow local officials to learn about the mobilizations and perhaps even pull strings behind the scenes while also shielding them from the spotlight. Finally, these policy-related mobilizations are not as dangerous as other types of protests. Their demands are usually relatively easy to satisfy, particularly as they pertain to very localized interests, so they are unlikely to spread across jurisdictions. Consequently, most higher-level decision makers see such incidents as a revelation of local policy demands rather than a more serious challenge to the regime.

lL: High-speed railways are making profits in the East but running huge deficits in the western part of China, which lacks passengers. Of course, those fewer passengers deserve good transportation even if it is not profitable. What are the aggregate welfare implications of localized bargaining?

XM: I do not have very specific data on the welfare impact of the high-speed railway projects. But economists have examined how the introduction of high-speed railway affects local investment, labor mobility, and urbanization. Some find that high-speed railway supports local economic development by improving transportation, whereas others find that it drains resources away from small cities. Generally, I think there is mixed evidence of the railway’s economic impact.

On the question of distribution, it depends on the angle.  Localized bargaining provides a mechanism for territorial administrations and other organized interests within the regime to articulate and pursue their interests. In a political environment that lacks open contestation (e.g. contested elections), I think localized bargaining allows policy needs of the relevant stakeholders to be heard and makes policy competition a more open and fair game.

On the other hand, there is growing regional inequality in China. The developmental gap is not only widening between coastal and inland regions, but is also growing between major and peripheral cities within a single province. I would attribute such gaps partly to localized bargaining. As I note in my book, the institutional bargaining power of the localities is crucial in determining the outcomes of their lobbying.

Institutional arrangements such as concurrent appointments often favor those places that have already got ahead in economic development. These places in turn use their privileged positions to gain access to more resources in their bargaining with the central or provincial authorities. This is how gaps in regional development get consolidated and reinforced despite the central government’s continued efforts to address them. It’s not only about unevenness in local economic endowment, but also because of the politics that structures policy competition among localities. 

lL:  To what extent is your story China-specific? Can we expect similar political dynamics elsewhere?

XM: I hope the arguments I’ve developed in the book can be useful for those interested in distributive politics and bureaucracy more broadly. The story is certainly not unique to China. We can find many parallels in the developed and developing world.

Scholars of India, a country with a similarly vast territory and multilevel governance structure, also find similar patterns of resource allocation. In Sunila Kale’s study of electricity networks and Adam Auerbach’s study of urban slums in India, they both find that bottom-up mobilization is a crucial determinant in local communities gaining benefits from the state. In Jonas Kornai’s study of the planned economy system in the former Soviet region, he identified a phenomenon of “plan bargaining” in which state-owned firms tried to ask for more input and promise less output. Although China today is no longer a planned economy, local governments still need to engage in bargaining with their superiors in ways similar to those documented by Kornai.

Finally, although my book focuses on domestic projects, the arguments are also relevant for overseas infrastructure projects. Chuyu Liu, who teaches at University of Amsterdam and studies Chinese overseas infrastructure projects, finds that the fragmented decision-making authority in central agencies that regulate overseas projects allows state-owned enterprises, which have more know-how of navigating the system, to win contracts for projects. In contrast, private firms that have less knowledge and connections to help them navigate the complex regulatory system become less competitive. So, if domestic localized bargaining is about competition between local administrations, then the overseas story is about competition between different types of firms. Based on this comparison, I hope my book can stimulate new conversations on the policy process behind China’s infrastructure projects home and abroad.