Truck and Barter: Public vs. Private Cars in Shanghai

August 21, 2004

Public vs. Private Cars in Shanghai

By Kevin

The Chinese government's method of economic liberalization is slow release of control to the people--i.e. to the private sector. This unclenching of the fist is seen clearly in car ownership.

It is no surprise to find that the number of private cars still lags behind the number of public cars in most areas. But the slow, gradual transfer to private dominance uses different methods in different regions--an element of federalism I was surprised to find (being ignorant of Chinese history).

For instance, in Shanghai periodic sealed-bid auctions are held for a limited number of license plates--a regulation intended to limit the number of private cars bought:

Shanghai produces nearly one-third of the country's total sedans, but buying a car is still not easy for upwardly mobile Shanghainese due to increasing licence plate prices.

The city authority controls the number of new cars on the road by strictly limiting the issuance of new plates to the public through auctions.

Due to that policy, the average price of Shanghai's licence plates hit a record high of over 40,053 yuan (US$4,820) at the monthly auction over the weekend. In January, the average price stood at 39,516 yuan (US$4,770), also a historic high compared with last year's figures.

Just imagine such a restriction in Detroit in 1950! To ease some of the disparity, the local government has halted giving license plates to the government and associated industries, until it can set up a system of auctioning plates to institutions just like it does for private cars!

(Note that some people claim that license-auctioning violates Chinese law).

This might not seem like a big deal, but it is. Faced with a severe traffic constraint, this institiutional decision to 1) restrict a government perquisite, and 2) put the private and government sectors on an equal footing is both economically sound policy and something rarely seen in a "normal" developing country like Russia.

But of course, registration in Shanghai is only for the rich. However, cars seem to have been finding the path of least resistance onto the streets of Shaghai, as residents have taken to registering their cars in neighboring provinces:

The restrictive auction policy is obviously at odds with the central government's line to encourage car buying and in particular, foster domestic automakers who are mostly struggling for the low-end market...

Many Shanghai residents opted to turn to agencies which can manage to licence their cars in neighbouring cities such as Suzhou and Hangzhou. Despite various restrictions on cars licensed outside Shanghai, these licences have become a big lure to Shanghai people because the cost is mere peanuts compared to that of the local licences.

It is estimated that more than 2,000 cars owned by Shanghai residents have been licensed in the neighbouring town of Kunshan alone, not to mention other bigger cities. For each of these cars, Shanghai losses about 12,000 yuan (US$1,449) in road tolls and other charges each year.

The costs are so large that it's more like running a jitney in NYC than having your car registered in a different state. However, the governments seem to have unsuccessfully banned the practice of distant registration.