How exactly did visibility projects lead to deprivatization of the bus sector? How did deprivatization happen? In this chapter, I adopt a most-similar case comparison method to showcase the causal mechanism linking visibility projects to the private bus companies’ forced exit from the sector. I show that deprivatization occurred as a direct result of visibility projects, not as a result of government capacity or the locality’s general investment environment. From my 233-city sample of bus sectors, I select Guangzhou and Nanning to construct the most-similar case comparison. Guangzhou deprivatized its bus sector and Nanning did not. These two cities experienced different levels of government engagement in visibility projects in the bus sector, but are similar in other aspects that could potentially explain deprivatization, such as the city government’s regulatory capacity and the general investment environment in the city.
An Opposite Marketization Outcome in Guangzhou and Nanning
Guangzhou is the capital city of Guangdong province in south China and Nanning is the capital city of neighboring Guangxi province. As provincial capitals, they both receive the most political attention and fiscal subsidies from their respective provincial governments. Guangzhou deprivatized its bus sector in 2007 and Nanning still has a privately controlled bus sector. Guangzhou launched multiple visibility projects in the urban bus sector and Nanning only launched a few.
Guangzhou and Nanning are ideal cases to tease out the effect of visibility projects because they allow me to exclude two other potential explanations for deprivatization of the bus sector.Footnote 1 First, it is possible that deprivatization of the bus sector takes place because of different government capacities in regulation. Maybe Guangzhou deprivatized its bus sector because the Guangzhou city government does not have enough government capacity to regulate private bus firms. But because Guangzhou and Nanning do not vary in the dimension of regulatory capacity, as will be discussed at the end of this chapter, we can exclude this explanation.
Another possible explanation is that Guangzhou city has a worse investment environment and the Guangzhou government treats private investors worse than in Nanning. And while these two cities do differ on investment environment, the difference in fact creates a bias against finding the effects I expect, making this comparative case study an even stronger empirical test. Guangzhou has a better investment environment than Nanning. It has been consistently rated as one of the top cities in China for investment environment, property rights protection, and contract enforcement. In the 2006 World Bank investment climate survey of firms in 120 Chinese cities, Guangzhou ranked fourth on general investment environment, while Nanning only ranked sixty-seventh. Of all the private firm respondents, 61 percent were confident their contracts would be protected in Guangzhou and only 36 percent were confident their contracts would be protected in Nanning (World Bank 2006).Footnote 2 This should make deprivatization less likely in Guangzhou than in Nanning, contrary to what happened. Therefore, investment environment also cannot explain the different outcomes for the private bus companies in these two cities.
Instead, the politicization of business in this sector, specifically through government requests for firms to contribute to visibility projects, led to the deprivatization of private bus firms. But let me start from the beginning, when the two cities privatized their urban bus sectors.
Privatization of Urban Buses in Guangzhou and Nanning
Guangzhou and Nanning had experiences with privatization in the bus sector typical to most Chinese cities. In 1994, Guangzhou became one of the earliest cities in China to open its urban bus sector to private firms. By the end of 2006, nine out of fourteen bus firms in Guangzhou were privately owned, including three Hong Kong bus firms and one Macau firm. Wholly private firms ran 37 percent of all buses in Guangzhou. Even the five bus state-owned enterprises (SOEs) all had private investors. The number of urban buses in Guangzhou had increased by 188 percent since 1994, and buses became the primary public transportation mode in Guangzhou in the 2000s. All bus firms signed twenty-year renewable franchise contracts with the Guangzhou government for bus service provision. Bus firms agreed to provide more buses and bus lines, and more frequent buses. They also agreed to replace buses every ten years. Bus firms did not have the right to decide bus fares and plan bus routes, which were solely controlled by the city’s Traffic Bureau.
Nanning had a nearly identical experience in privatizing the bus sector, albeit a few years later. In 2001, Nanning opened its urban bus sector up to private investors. Nanning now has a total of six bus firms: Five are privately owned and the remaining one is a state–private joint venture. Like Guangzhou, wholly-private bus firms in Nanning operated 38 percent of all urban buses in the city. By 2013, thirteen years after privatization, the number of buses in Nanning had increased by 217 percent and the number of bus lines increased from 37 to more than 200. Following the standard procedures in Chinese cities, private bus firms signed twenty-year renewable franchise contracts with the Nanning city government. All bus firms agreed to replace buses every ten years, and bus fares could not be raised without agreement from the city government. Bus firms also could not change or open new bus routes, as these decisions were controlled by the Traffic Bureau.
Different Outcomes: Deprivatization in Guangzhou, but Not in Nanning
In January 2007, a mere thirteen years after Guangzhou’s initial privatization of its bus sector, and long before any contract between the private bus firms and the Guangzhou government would end, Guangzhou’s city government announced it would put the bus sector back under state control. Deprivatization was fully realized by the end of 2009. All fourteen bus companies were merged into three state-owned bus groups.
The city government formed a deprivatization task force led by the Traffic Bureau to oversee the mergers and acquisitions. There was only limited resistance from private bus firms to deprivatization, partly because of what happened to a Macau bus firm that refused to purchase new energy buses in 2005. The Macau firm resisted the Guangzhou city government’s requirement to replace new, functioning buses with new energy buses by organizing strikes and by suing the city government for not following the contract, which stated buses only needed to be replaced every ten years. However, the Macau firm lost the case and was punished by the city government, which mobilized the Bureau of Environment and the Bureau of Commerce to ban the operation of the Macau firm for reasons including excessive exhaust emissions and tax evasion. The Macau firm quickly lost its main source of income. With this precedent, when the Traffic Bureau in Guangzhou announced the plan for deprivatization, other private bus firms followed the order quietly. As a vice president of a former private bus firm said, “If you [firms] do not follow the government’s demand, you won’t have a good ending, like that Macau firm.”Footnote 3
In contrast to Guangzhou, the Nanning government steadily pushed for further privatization in the sector from 2001, with the most recent private firm entering the city’s bus sector in 2007. The Nanning government’s intervention in the urban bus sector has been limited to regulation and a push for new energy buses. Starting in 2013, Nanning’s Traffic Bureau founded a regulation enforcement task force with officials from the Traffic Bureau, the Police Bureau, and representatives from all the bus firms to conduct biannual inspections of bus operations. Task force members ride buses as ordinary passengers, observe bus operation at bus stops, and inspect the condition of the buses.
What explains the different outcomes in the two cities’ urban bus sectors? I discuss the roles of visibility projects and city leadership first, and the alternative hypothesis later.
Deprivatization for Visibility Projects
I find Guangzhou’s deprivatization to be primarily a result of long-term tension between the private bus firms and the city government, induced by eight waves of visibility projects in the city over the course of nine years. One major visibility project in 2006 – construction of a BRT system – broke the private bus firms’ bottom line and triggered widespread grievances from them, which led to the government’s decision to deprivatize. Nanning, on the other hand, did not have nearly as many visibility projects by 2013, also thirteen years after the initial privatization of the urban bus sector, and did not experience deprivatization of the bus sector. Guangzhou had an ambitious leadership in charge of the public transportation sector pushing for visibility projects and Nanning did not. See Table 5.1 for visibility projects in the two cities.
| Guangzhou | Nanning | |
|---|---|---|
| Outcome | Deprivatization in 2007 | No deprivatization to date |
| New type buses | 2002, 2005, 2006 | 2013 |
| City title application | 1998, 2001, 2004, 2006 | 2001, 2009 |
| BRT | 2006 | N/A |
Guangzhou: Visibility Projects and the Eventual Deprivatization
The 2007 deprivatization of buses in Guangzhou is an outcome of a long history of visibility projects since 1998 and intensive launches of visibility projects between 2004 and 2006, with three simultaneous visibility projects in 2006 that pushed the private bus firms to the edge. These visibility projects created a high level of tension between Guangzhou’s city government and the private firms, and the city government eventually used deprivatization as a measure to keep pushing for visibility projects by removing the resisting private bus firms.
A Peaceful Start to Visibility Projects
From 1998 and 2004, the private urban bus sector and Guangzhou’s city government had a friendly relationship. The city launched three waves of city title applications, while also asking Guangzhou’s urban bus sector to purchase air-conditioned buses during this period (as shown in Figure 5.1). These requests received full support from the private bus firms. Guangzhou applied for the National Civilization City title three times; for the National Traffic Management Model City title in 1998 and 2004; and for the National Environment Protection Model City in 2001. All these applications required the bus firms to clean their buses, replace old ones, and maintain orderly bus operation. Guangzhou won the provincial level Civilization City title and the National Traffic Management Model City title in 2004, and the National Environment Protection Model City in 2001.
Figure 5.1 Phase I of visibility projects, 1994–2002
At the end of 2001, the Guangzhou Traffic Bureau ordered all bus firms to fully replace the city’s 6,000 buses with air-conditioned buses within five years, without government subsidies. A subtropical city that has hot and humid summers, providing air-conditioned buses is not exactly a visibility project but has a real developmental impact. While this demand was costly and not specified in the contracts, the time frame of five years made it possible for bus firms to spread the costs. Moreover, five years means a lot of the air-conditioned buses would replace buses reaching the end of their service life, and so were already included in the budget of the private bus firms. Therefore, the private bus firms did not resist the call for air-conditioned buses, and Guangzhou became a city with 100 percent air-conditioned buses in 2005. The Guangzhou government proudly praised the bus sector, calling them a “beautiful name card” for the city.Footnote 4
Tensions Rise with More Visibility Projects
Between 2003 and 2005, the relation between the city government and the bus firms started to deteriorate with a new requirement from the city government (Figure 5.2). Guangzhou’s Traffic Bureau announced a plan in 2004 to completely replace all buses using traditional diesel or petrol with buses that used liquefied petroleum gas (LPG) fuel. This plan aimed to reduce exhaust emissions, as LPG was believed to release few visible emissions, and was therefore thought to be much cleaner. Guangzhou’s city government announced it would become the first city in the world to use only LPG fueled buses for public transportation.
Figure 5.2 Phase II of visibility projects, 2003–2005
This time, the government’s resolution did not get support from the bus firms. The LPG bus plan was essentially asking the bus firms to replace their almost brand-new, air-conditioned buses that were not even four years old. And a lot of the air-conditioned buses were new models that met the environmental standards for exhaust emissions. Bus firms asked for subsidies from the government or they would not make the purchase, and the Traffic Bureau had to stall the plan for LPG buses for a year.
In 2005, the Traffic Bureau reissued an announcement to replace all current buses with LPG buses within a year, this time with help from other government departments. In an interview with a national newspaper in January 2005, the head of Guangzhou’s Traffic Bureau told journalists they would use administrative means to ensure bus replacement. With coordination help from the city government, Guangzhou’s Traffic Bureau issued an official notification along with the city’s Bureau of Environment and Bureau of Public Security. In the notification, the three departments made it clear that all bus firms had to either replace their current vehicles with LPG ones, or to modify the engines on current vehicles into LPG compatible ones within a year, otherwise their operations would be suspended. The Traffic Bureau also promised bus firms a symbolic subsidy of 20,000 yuan for each new LPG bus purchase, which was around a twentieth to a thirtieth of the cost. The Guangzhou government did not designate any specific new energy bus manufacturers to the bus firms, allowing them to choose whichever manufacturers they wished.
This notification sent a strong signal to all the bus firms in Guangzhou. Private bus firms realized the government was determined. “They [the government] want it to happen, then we [private bus firms] must do it.”Footnote 5 At the end of 2006, exactly one year after the official notification, Guangzhou had successfully turned nearly 90 percent of its urban buses into LPG buses. Only a Hong Kong bus firm and a Macau bus firm refused to replace the remaining 10 percent because their buses were barely three years old. The Macao bus firm collected its own data, which showed no environmental hazards from their buses, and sued Guangzhou’s Traffic Bureau. Eventually, they lost the case and their bus operation was suspended, as described earlier in the chapter.
The 2005 LPG bus purchase pushed every bus firm in Guangzhou into a financial abyss, including the bus SOEs. First, LPG as a fuel cost twice as much as traditional fuel. According to an interviewee working for a bus SOE, the cost of the traditional diesel fuel per bus per day was around 400 yuan, but LPG fuel cost more than 1,000 yuan per bus per day. As a result, the SOE firm immediately turned from operating on thin profits to huge losses after six months.Footnote 6 Another private bus firm manager described the purchase of LPG buses as a “hemorrhage” on the firm’s balance sheet.Footnote 7 Second, engines compatible with LPG fuel were a new product in China and their quality was unreliable. Some of the engines needed to be repaired or replaced every six months, imposing another high cost on the bus firms. However, the bus firms still went along because, “what else can you do? There are many ways the government can cause trouble for you.”Footnote 8
Even More Visibility Projects, and Passive Resistance
With their balance sheet turned upside down with the purchase of LPG buses in 2005, a new visibility project in 2006 dashed the last hope of bus firms to make ends meet. The new project was a grand plan to build a “modern” public transportation system in Guangzhou. The plan affected the bus sector in two ways. First was the construction of a 70-kilometer-long BRT system. The Guangzhou government planned to have this built by 2009, and once it started operating, eighty-seven regular bus lines would cease service, a third of which were privately operated. Secondly, the Guangzhou government required bus firms to provide more than 2,000 new, longer buses (12 meters instead of the regular 8 meters) for the BRT system, and demanded that all the other urban buses were identical in color, which required bus firms to purchase new buses and to repaint the current ones. These projects are shown in Figure 5.3.
Figure 5.3 Phase III of visibility projects, 2005–2007
Given these requirements, the construction of the BRT system broke the private firms’ back. The BRT system not only increased the bus firms’ costs by asking them to purchase new buses for the BRT lines, but also decreased the bus firms’ income by removing bus lines and demanding income-sharing with the government. BRT would cover two of the busiest districts in the city, meaning the existing bus lines would need to be removed to make room for the BRT, which were also the most profitable lines for the bus firms. Even though the private firms that operated these removed bus lines were given the right to operate the new BRT buses, the generated income was to be shared with the Traffic Bureau.
When the announcement of BRT construction was made in early 2006, the private bus firms affected simply received a notice that bus lines overlapping with the BRT system would be removed, and that their income from operating in the BRT system must be shared with the government after the BRT was put in place. Private bus firms were angry as they had not been consulted beforehand, and there was no arrangement about what happened after these most profitable bus lines were removed from operation. When the private bus firms signed the franchise contracts with the government, they had paid for ten years of exclusive rights to specific bus lines, and the contracts still had seven years until expiration.
It was also a bad time for the private bus firms to lose a large number of profitable bus lines and have decreased income, because it would make paying off their debts on air-conditioned and LPG buses even more difficult. The bus firms’ ability to afford constant government-initiated projects had quickly declined with accumulated debts from previous visibility projects. While bus SOEs could postpone their debt repayment and even had loan interest written off with the help of the city government, private bus firms did not have that luxury. They decided to resist the BRT project.
Only a few firms used aggressive means such as strikes and lawsuits. Having observed the fate of the Macau firm that aggressively resisted the purchase of LPG, other private firms decided that “extreme measures are no use, they are bad for you.”Footnote 9 Instead, most private bus firms used what James Scott described as “weapons of the weak” (Scott Reference Scott1987). Their passive resistance was observed in the fall of 2006, when Guangzhou became one of the finalists in a competition for “National Public Transportation Model City.”
To prepare for this, buses in a city needed to look clean and new, arrive on time, not produce visible exhaust, and operate in an “orderly” fashion, with no hard braking, no sudden lane shifts, and so on. The evaluation was done in October and November by a national government task force, which visited all the candidate cities and graded them. In the past, Guangzhou had always won this title through the cooperation of bus firms. In 2006, the private bus firms decided to do a bad job. They sent out fewer buses during the time of competition, making buses look more crowded than usual.Footnote 10 The drivers also deliberately drove badly, causing chaotic scenes by forcing lane changes, “lane hogging” to block other traffic, and racing other buses to get to the bus stop first and take the most passengers on board.Footnote 11 There were also reports of buses stopping in the middle of the road to let passengers off instead of stopping at bus stops, and parking on the roadside right outside an empty bus parking lot to cause slow traffic.Footnote 12 Because of the lack of cooperation from private bus firms, Guangzhou did not win the national title for the first time. This alarmed Guangzhou’s city government, which started to worry that the bus firms would continue their passive resistance during the upcoming Asian Games.
The Asian Games is the Olympics of Asia, held every four years with athletes from forty-five Asian countries. Guangzhou would be hosting the sixteenth Asian Games in 2010, and had started preparing for it in 2005. Before Guangzhou, the last time a Chinese city hosted the Asian Games was Beijing, in 1990. Hosting the Asian Games is a great opportunity for city leaders. It puts their city under an international spotlight, attracts political attention from the top, and brings in fiscal subsidies from both the central and provincial government. If a city leader succeeds in organizing the games, their opportunity for further promotion increases.
Both BRT and new energy buses were visibility projects, as the Asian Games guarantees the highest level of publicity and attention from upper-level governments. The city government would not allow any type of resistance to these visibility projects. To make sure they went well, the city government decided to deprivatize the bus sector to get rid of the private bus firms.
Deprivatization to Continue Visibility Projects
In a 2009 internal document to the city government summarizing the deprivatization process, Guangzhou’s Traffic Bureau listed four reasons for deprivatization: (1) It wanted to make sure no black exhaust was released from buses during the Asian Games, but private bus firms were not cooperative. (2) The BRT system construction was planned to finish by the end of 2009. Deprivatization would prevent any possible protests and strikes by the private bus firms opposing the BRT’s operation. (3) More subway lines would be in operation from 2010, and more bus lines would be adjusted in response to that. Deprivatization made it easier to get cooperation from only bus SOEs. (4) Bus services require safety and service quality. The profit-driven nature of private firms makes them unsuitable in providing public services.
Deprivatization was essentially a measure to guarantee the smooth implementation of the visibility project of upgrading the city’s transportation system, as described by the second and third reasons listed in the statement. The first listed concern was already taken care of by the replacement with LPG buses. The fourth reason, if it were true, would have been a constant factor since privatization and does not explain the timing of deprivatization. As a former private firm bus manager commented when asked about his opinion on the aforementioned document, “BRT was the direct reason, and purchase of new buses was the indirect reason [for deprivatization].”Footnote 13
The potential conflict between private bus firms and the upgrading of Guangzhou’s urban bus system lies in the costs and speed of the upgrading process. Guangzhou’s city leaders needed the implementation of the BRT, the replacement of more than 2,000 buses, and the removal or merger of more than eighty-seven bus lines to be done within three years. Resistance from the private bus firms through strikes and refusal to renew buses or merge bus routes had occurred, and the city government expected more resistance in the course of implementing the changes. If the city government chose to negotiate with the multiple private bus firms, then the process might take too long, especially considering what had happened with the previous LPG upgrade plan, in which the city government spent two years just to have bus firms change buses or engine type. Furthermore, the concern that some private bus firms might start protests and even lawsuits against the city government was real. What had happened with the Macau bus firm during the LPG upgrade plan showed this was a genuine risk.
Therefore, deprivatization of the sector became the optimal choice, as it removed the opposition standing in the way of the sectoral upgrade, rather than requiring negotiation and compromise. This is not to say deprivatization would not lead to protests or lawsuits, as it often does. But these protests and lawsuits would happen after the bus firms were stripped of their operation, and therefore no longer posed a threat to the visibility projects themselves.
Ambitious Leadership behind Visibility Projects
The multiple waves of frequent visibility projects were a result of ambitious leadership in the public transportation sector. In the thirteen years between privatization and deprivatization of the urban bus sector in Guangzhou, a small number of government officials overseeing Guangzhou’s public transportation sector were promoted step by step with each visibility project in the sector, who in turn were incentivized to promote more visibility projects. The vice mayor, Guangning Zhang, who oversaw public transportation development in Guangzhou city in 1998 was promoted to be mayor in 2003, after two applications to national city titles, promotion of air-conditioned buses in the city, and the first two lines of subway construction. After pushing for a second wave of bus replacement – the LPG buses in 2005 – and the launch of BRT in 2006, Zhang was further promoted to be the party secretary of Guangzhou in 2010 after the Asian Games. The head of the Traffic Bureau in 1998, Bingchang Ou, who enforced the visibility projects in the public transportation sector with Zhang, was offered a lucrative job as the chairman of one of Guangzhou’s largest real estate SOEs in 2003. The head of Guangzhou’s Bureau of Development and Reform in 2002, Xin Gan, who pushed for the air-conditioned buses and the LPG buses, was promoted to be the vice mayor of the city in 2006, and he pushed for the BRT project as vice mayor. After the Asian Games and BRT construction in 2010, he was further promoted to be a CCP committee member of the municipal committee, among the highest level of leaders of the city. The head of Traffic Bureau in 2002, Weixiong Xian, who enforced the projects for LPG bus purchase, BRT, and deprivatization was granted the extra position of CEO of Guangzhou’s new airport in 2005, and further became the chairman of Guangzhou’s Political Consultative Committee. He stayed in these positions until 2015.
In 2006, right before deprivatization, Guangzhou had a new and ambitious party secretary, Xiaodan Zhu. Becoming the party secretary of Guangzhou, the top leader of one of the richest provincial capitals in China, is a huge step up in a Chinese official’s career. The party secretary took on big plans to transform the city, including more trees, cleaner rivers, new stadiums for the Asian Games, and the construction of an “Asian Games Village” to accommodate athletes. BRT construction was one of the plans suggested to and adopted by Zhu. To ensure this went smoothly, Zhu promoted the Bureau of Development and Reform head, Gan, to be the vice mayor, after Gan had suggested this, and had Gan oversee the BRT construction and deal with the bus firms affected by the plan. Knowing the bus firms and their past resistance to visibility projects very well, Gan and the Traffic Bureau officials suggested deprivatization to guarantee the smooth construction of the BRT system, and the fate of the private bus firms was sealed. After the 2010 Asian Games, Zhu was promoted to be the vice governor of Guangdong province.
Therefore, deprivatization in Guangzhou was the outcome of several factors. First and foremost, there was a long history of visibility projects in the sector, which negatively affected the relationship between the bus firms and the city government. By the last visibility project, construction of a BRT system, the private bus firms were running at a loss owing to the large investments required by previous visibility projects, and they started to resist yet another new demand on them. This resistance met a leadership who faced a great opportunity – the Asian Games – to increase their political visibility and show off their capability in city management. The leadership was determined to build the BRT before the Asian Games, and the time frame made the leadership unwilling to negotiate with private firms. Deprivatization became the most effective way to overcome resistance by private firms.
Nanning: Lack of Visibility Projects and a Stable Bus Market
Nanning, unlike Guangzhou, did not have any of the conditions just described by 2013, thirteen years after their privatization of the urban bus sector. The bus sector in Nanning did not have to respond to nearly as many visibility projects as in Guangzhou (Figure 5.4). While the bus sector participated in two waves of national city title competitions in 2001 and 2009, the costs associated with these title competitions were affordable to the firms, and the two applications were far enough from each other to give the bus sector time to breathe in between.
Figure 5.4 Visibility projects in the bus sector, Nanning City
Nanning also had the bus firms purchase new energy buses, but only once. In 2013, clean energy buses were introduced for the first time. The city government promoted two newer types of fuel, compressed natural gas and liquefied natural gas, which were believed to be much cleaner than traditional diesel or petrol. The 2013 plan was to deliver 1,500 new energy buses by 2018, replacing half of the operating buses in the city. Nanning’s city government did not provide any direct subsidies to the bus firms as Guangzhou provided. Instead, they helped the firms obtain loans from state-owned banks. A few private firms tried to resist at first, and Nanning’s government responded with administrative measures similar to those seen in Guangzhou. Nanning’s Traffic Bureau and Bureau of Environment cooperated, issuing “suggestions” to bus firms who resisted purchasing new energy buses, warning them of suspension of operations if they would not replace their buses on time.
With this warning from the government, all bus firms quickly cooperated. The goal to replace half of the buses with new energy vehicles was reached two years early in 2016. In this process, Nanning’s city government also did not specify bus manufacturers. The six bus firms in Nanning purchased buses from Shanghai, Beijing, and two smaller bus manufacturers in Guangxi province.
The push for new energy buses in Nanning in 2013 was a one-time project in the thirteen years since privatization, and it was not a quick and hard demand from the government as was the case in Guangzhou, even though the city government also had to use some form of coercion. Nanning’s bus firms had five years to replace only a part of their bus fleet, instead of replacing all the buses within one year as in Guangzhou. Nanning’s private bus firms could afford the costs, and they quickly abandoned resistance, providing the city government with no incentive to deprivatize.
Furthermore, Nanning did not have ambitious city leaders at the time it hosted a major event that could have justified visibility projects. In 2003, Nanning became the permanent host of the annual China–ASEAN Exposition, a trade fair for businesspeople from China and the ASEAN countries. However, Nanning’s top leaders did not have enough incentives for large urban planning projects for this event for an unusual reason. In 2002, the whole province of Guangxi, including Nanning city, was in political turmoil. Back in 2000, a Central Committee member of the Chinese Communist Party and Vice Chairman of the National People’s Congress, Kejie Cheng,Footnote 14 had been executed for corruption. Cheng was the governor of Guangxi province in the early 1990s. After he was arrested, his political network in Guangxi was also investigated, including top provincial and city leaders. In 2002, Nanning’s regional chief party secretary was arrested;Footnote 15 a top city leader in Nanning’s neighboring city, Guigang, was executed; two vice provincial governors were arrested and sentenced; and many other lower level officials all over the province were arrested.Footnote 16
With this unusual political atmosphere in Guangxi province, local politicians were attention-averse rather than attention-seeking. Though lacking direct information on how the anti-corruption campaign in Guangxi province affected the then city leaders of Nanning, my interviews with other officials can shed some light. One city leader talked about how he and his fellow politicians viewed the current anti-corruption campaign: “With [the] anti-corruption [campaign] in place, why would you do anything? Whatever you do will draw attention and could make you look suspicious [of being corrupt], even if you didn’t actually do anything. Why take the risk? Might as well not do anything and stay in peace.”Footnote 17 Another official said: “Anti-corruption makes no one dare to do anything. One more project is one more trouble. It’s better to do less.”Footnote 18 City leaders in Nanning in 2003 likely shared the same mentality when their colleagues all over the province were being investigated. As a result, they did not take advantage of the 2003 China–ASEAN Exposition to launch any visibility projects. Therefore, this international event did not have an effect as was the case for the Asian Games in Guangzhou.
Nanning did have an ambitious city leader in 2013 who launched visibility projects, and the bus sector was a part of them. The ambitious city party secretary, Yuanhui Yu, launched a campaign called “Beautiful Nanning” in 2013. A key component of this campaign was to make the city look attractive, so Yu ordered strings of lights to be hung on the trees along the river banks of the city’s main river, remove street vendors from sidewalks, and repaint the walls of old residential buildings. In the public transportation sector, bus firms were required to purchase new energy buses as described earlier, but the time frame was lenient. Other requirements from the local government were limited to establishing order on the streets, with specific goals such as reduced traffic congestion, orderly and safe bus operation, and refurbished, clean buses.
None of these extra requirements was particularly costly for the bus firms, and therefore there was not much resistance from them. The city government formed a regulation enforcement task force to monitor the urban buses for this campaign instead of deprivatizing the sector because they had no incentive to deprivatize – resistance was minimal and there were no large events or new central policies to provide a legitimate reason for deprivatization. No justification meant no support from higher-level government, and a fundamental change without any legitimate reason could easily have led to suspicion of misuse of public funds, much like the old-style achievement projects that came to be so heavily criticized. To deprivatize the whole sector, leaders need legitimate reasons and must be able to benefit from it politically. Unlike in Guangzhou, where both factors were present, Nanning did not have solid justification. Therefore, the urban bus sector has so far remained stable.
Alternative Explanation: Lack of Capacity to Regulate the Private Bus Firms
In this section, I address an alternative hypothesis from the literature, which was not tested in the statistical analysis owing to data unavailability. City governments might have an incentive to deprivatize if they cannot effectively regulate private buses, which would make the government unable to address lower service quality in the urban bus sector.
A key finding from the literature of privatization is that regulation capacity is crucial to ensure effective private provision of public services. With weak regulatory capacity, private providers of public services will be incentivized to reduce costs by providing lower-quality services (Hart, Shleifer, and Vishny Reference Hart, Shleifer and Vishny1997; Gerard Reference Gerard2008). Low-quality bus services in Chinese cities is a phenomenon commonly reported in the media. Guangzhou and Nanning both had various media reports of low-quality private bus operations, including speeding, passing other cars illegally, not stopping at every bus stop, and other safety and operational problems. Both cities also had fatal traffic accidents involving private urban buses. In April 2006, an urban bus owned by Nanning’s largest private bus firm had an accident involving eleven deaths, with the bus driver being held responsible. In February 2007, when deprivatization was already under way, a private bus in Guangzhou struck and killed a biker. While there is no publicly available data to systematically examine the difference in service quality between private buses and publicly owned buses, this chapter assumes the private bus services were more problematic than public ones in both Nanning and Guangzhou, as depicted in media.
With this assumption, an alternative explanation for deprivatization in Guangzhou but not in Nanning is that Guangzhou had weaker regulatory capacity than Nanning, and therefore had to deprivatize to improve service quality. According to the literature on China’s policy enforcement, a major obstacle to regulation enforcement is widespread bureaucratic fragmentation, where government departments have no incentives to cooperate with each other (e.g. Lieberthal and Lampton Reference Lieberthal and Lampton1992; Pearson Reference Pearson2007; Mertha Reference Mertha2009). It is possible that the Nanning city government was more capable of bringing its bureaucracy together to rein in the private bus firms, and therefore did not need to deprivatize the sector. The Guangzhou city government may have had fragmented bureaucracy so could not bring together all the necessary bureaucratic departments to regulate the private bus firms, and therefore had to take the drastic step of deprivatizing them. Following this logic, we should expect deprivatization to be a bureaucratically easier solution than regulation. Empirically, however, I find this is not true.
Deprivatization in Guangzhou took a total of ten different government departments and twenty-four months to complete. As one official who went through the process said, “it was so very hard to cooperate with so many departments, truly annoying.”Footnote 19 First, the Guangzhou Development and Reform Commission and the Guangzhou Traffic Bureau made plans for deprivatization. Then eight more government departments were involved in implementation: the Bureau of Transportation Management, Bureau of Public Security, Bureau of Finance, Bureau of Commerce, Bureau of Environment, Department of Publicity, Tax Bureau, and Bureau of Labor and Social Security. All ten departments created a task force led by the Traffic Bureau to negotiate with the private bus firms, reassign bus routes belonging to the private firms, work on mergers of assets and liabilities, and downsize and reorganize the labor force. The process was extremely complicated, and each step required multiple departments to cooperate with each other. For example, to assess the monetary value of one privately owned bus involved the Traffic Bureau, the Bureau of Environment, and the Tax Bureau.
Regulation in Nanning took only two government departments to implement: the Traffic Bureau and the Public Security Bureau. Traffic Bureau staff took buses as regular passengers and graded the performance of bus services, then fined the bus firms or suspended their operations if they found serious violations of safety codes. Traffic police checked on the buses’ condition and could suspend a bus that was deemed unsafe or environmentally harmful. Starting in 2013, Nanning’s Traffic Bureau set up an extra task force to monitor bus operation in the city twice a year. This task force included representatives from each bus firm. It took only two months for Nanning’s Traffic Bureau, the Bureau of Public Security, and the city’s six bus firms to agree on specific codes for regulation and to start enforcement operations.
Obviously, deprivatization is much costlier and involves many more bureaucratic agencies to carry out than regulation. If a city government has the capacity to deprivatize, it will also have the capacity to regulate the bus sector. Deprivatization is thus not a measure to improve service quality, because city governments could achieve that goal with much less extreme and costly measures. This is further supported by several studies that show deprivatization is not related to service improvement. Dalian and Urumqi, for example, both deprivatized their bus services. But after deprivatization, these cities continued to face bus service problems by SOEs, and had to set up a city-level task force to oversee the enforcement of regulations in the already deprivatized bus sector (Mu and Jong Reference Mu and de Jong2012, Reference Mu and de Jong2016). Therefore, through comparing the fate of private bus companies in Guangzhou and Nanning, deprivatization of the urban bus sector is a direct outcome of visibility projects imposed on firms.
In this chapter and Chapter 4, I show that visibility projects sponsored by firms, a form of politicization of business, is the direct reason for deprivatization of China’s urban bus sector. The urban bus sector became a popular sector for visibility projects, which is a distortion of the central government’s call for clean air. Local government officials rightfully translated this central government agenda into more public transportation to disincentive the use of private cars. However, in the process of execution, they focused on the visible components of this policy endeavor. Throughout China, local governments launched visibility projects in the urban bus sector, applied for national city titles, demanded purchases of aesthetically pleasing buses and new energy buses without providing adequate supporting infrastructure, and built BRT systems hastily, often without proper planning.
Bus firms were asked to contribute to these visibility projects, but the sector-wide nature of these visibility projects means that no single bus firm could claim credit for them, making these visibility projects more like regulation than bribes. As a result, when the costs of visibility projects become exceedingly high and threaten a firm’s survival, private firms with hard budget constraints are the first to resist sponsoring more of the local governments’ visibility projects. Such resistance threatens the progress of visibility projects and thus the political future of ambitious local government officials, especially when local leaders have a limited time frame to push for these visibility projects. And the most effective measure to remove resistance is to force out private firms and replace them with SOEs. Visibility projects in the urban bus sector, therefore, ended the marketization process of the sector.
