This study is an overview of the effectiveness and institutional challenges of China’s Sloping Land Conversion Program (SLCP). The SLCP is the Chinese government’s largest Payment for Ecosystem Services (PES) program and one of the largest PES programs in the world. From an institutional perspective, the SLCP is particularly interesting because it represents a hybrid governance type that includes both voluntary and hierarchical (top-down) elements rather than traditional command-and-control approach. Our analysis is based on a literature review that encompasses 164 international scientific articles. To identify institutional challenges, we linked the results regarding the effectiveness of the program to its institutional aspects. Our SLCP case study highlights the dependence of the effectiveness of a governmental PES program on the specific regulatory institutional setting and the particular actors involved. Our results show that some institutional challenges undermine the anticipated advantages of PES (local participation) and eventually reshape the program outcomes through implementation process, particularly in cases of hybrid governance structures in which institutional requirements are as important as the design of the specific financial incentives. The collaboration between relevant government actors at different hierarchical levels, and specifically the motivations and interests of the government actors responsible for the implementation on the ground, play crucial roles. The SLCP can be an important milestone in environmental policy in China and the world, if more innovative elements of a theoretically ideal PES—such as local flexibility and self-interest (or at least the acceptance of the service providers supplying the relevant ecosystem services) can be strengthened. The environmental goals can be achieved in combination with greater self-interest of the applicable government actors on all hierarchical levels.
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