How does hybrid environmental governance work? Examining water rights trading in China (2000-2019)

Intensifying competition for water induces the growth of water markets in several countries for sharing water between rural communities and cities. While there is a growing recognition that adoption of market mechanisms in environmental governance relies on the state and different institutional arrangements, much less is known about how the interconnections among the state, market-tools, and the community work in practice. In China's distinctive political system, the central government has adopted a 'Two-Hands' approach () to water governance - a combination of strong central regulation and infrastructure development on the one hand, and adoption of market principles on the other to improve water reallocation. A recent study has explored the policy evolution underpinning this transition. However, no studies have systematically examined the implementation of the Two-Hands approach to reveal the underlying institutional hybrid patterns in environmental governance. This study fills this research gap by employing a Fuzzy Set Qualitative Comparative Analysis (fsQCA) to analyze how the interplay of the central government, market, and local governance shapes water rights trading patterns. A total of 29 water-scarce cities using water rights trading with 385 transactions were investigated for the period between 2000 and 2019 by combining evidence from fsQCA and qualitative case-studies. The implications drawn from interpreting the results are as follows: (1) the central government shapes the development of the market and its transactions but this is expressed in multiple ways through pilot projects and the national water exchange platform; (2) establishing water markets and investing in water infrastructure are mutually reinforcing, rather than mutually exclusive; and (3) local governments employ different property rights arrangements to adapt water markets in China's centralized politically institutional context.