China has one of the densest road networks of any emerging country, accounting for the vast majority of paved roads among lower- and middle-income nations. However, data at the national and provincial level show two puzzling trends. First, growth in the total length of highways has tapered off since 2003 despite policy shocks designed to produce the opposite effect. Secondly, Central and Western China continue to emphasize higher-class roads despite their urgent anti-poverty and market networking needs. We postulate that fiscal federalist institutions have strongly shaped the motivations of provincial leaders as the key political operators in bargaining over competing priorities and funding options. We argue that three variables, namely fiscal shortfall, procedural biases, and quality of private capital participation account for the discrimination on the part of provincial officials against different forms of financing and highway grades. These variables suggest that inland provinces, which display fiscal inadequacy and low-quality private capital, have perverse incentives to focus resources on higher-class toll roads.