By on April 9, 2011

This is the first in an infrequent series of pieces that take a step back from breathless blogging. They look at a phenomenon over the longer term, they have more in-depth research, they are hence a bit longer. We will run them on weekends, when some may have the time for 1,200 or more words.

Imagine, if you dare, you live in China’s capital, Beijing. It’s a nice place, actually. The population of Australia crammed into one sprawling city. Good food. Nice people. Great nightlife. As cities go, it covers a lot of space. Beijing proper is a bit less the size of Kuwait.

Now imagine you have your eyes set on a new car. Chery QQ, Chevy Escalade, whatever. What do you have to do to get behind the wheel? You have to win the lottery. Not to buy the car, a QQ goes for a few grand. You need to win the lottery for the same thing that keeps felons employed back home: A small piece of blue and white tin, a license plate.

Your chances of winning are rotten. Imagine you go to Vegas, you put a chip on a single number. If that number comes up on the first spin of the wheel, you may buy a car. If not: Better luck next month, ta-dah!

Next!

Those would be your odds in Beijing.

Truth be told, I exaggerated a bit. The odds to win a plate stood at 1 to 23 in March, that’s somewhere between a Split Zero and a Straight Up in roulette. The odds get increasingly worse as the year grinds on, as new applicants join the swelling ranks of previous losers, and as the payout remains the shape of a license plate: Flat.

See, Beijing drowns in cars. By the end of last year, there were 4.8 million vehicles on Beijing’s roads. In 2010 alone, 700,000 new cars were registered. Or 890,000 new cars, depending on which issue of China Daily you rely more. The smog is pretty much under control. It’s the roadways. The city is dying from acute congestion.

The city could have done the same Shanghai does. That beautiful city also has a population the size of Australia. Shanghai is divided by a river, and connected by tunnels that entrap the unwitting traveler. If your hotel is on the wrong side of the river, your flight from Hong Kong or Beijing to Shanghai can be quicker than the taxi trip to the hotel. That’s why Shanghai has two airports, one for each side of the river.

Years ago, Shanghai applied a typical Chinese method to the problem: Money. In Shanghai, a limited number of license plates is auctioned off once a month. They go to the highest bidder. You think that’s because China has just recently been poisoned by bourgeois ideas?  The plate auction is looking back at a 16 year tradition. This April, 8,000 tags will come under the (computerized) hammer, that’s about what Beijing used to issue in four days. A Shanghai plate sets you back more than a QQ: Last month, the average price for a plate was $7,053. Shanghai Daily [sub] reckons that this month, the price will reach new highs.

The $10,000 plate is not too far off (also helped by the tanking dollar and rising Chinese currency.)

Beijing did not want to stoop to the lows of that frivolous westernized port city. Beijing decided on a system that gives the same rotten chance to rich and poor: A lottery. On Christmas eve last year, the city handed the Beijingers a present: 240,000 new cars for the year, that’s it. Each month, the winner is drawn by (computerized) lottery.

The entrance to the lottery wants to be earned. First, you have to download an application from the Internet. Global Times says the address is bjhjyd.gov.cn, but they trick you. It’s somewhere else. Once you have found it, you need to fill in the form and send it in. Then the application gets checked. In the first round in January, 210,000 applications came in. Only 187,420 made it into the lottery. I don’t know what the 22,580 did wrong, but there must be a way to keep out the riff-raff. If your application is accepted, you get a number, and if your number comes up in the monthly lottery, you get a plate.

With 240,000 plates available for the year, 20,000 plates should be awarded each month. However, it is only 17,600 for each lucky draw, the balance is reserved for commercial drivers, businesses and government use.

The unlucky candidates are carried over into the next month’s lottery, where they meet the new qualifying applicants. In February, it was 292,000 candidates with a one in sixteen chance. In March, the number had swelled to 397,543 candidates with odds of one in 23. It will get worse every month. Maybe even every year, with plateless and luckless zombies pouring in in January. Speaking of worse:

Beijing’s desperate car dealers geared up to fight for 20,000 first time buyers each month. To their dismay, less than 10 percent of the winners actually bought a car. By the end of February, 3,400 out of 35,200 had their hard earned plate affixed to a new car. The holdouts have six months to get one, if they don’t, the plate goes back in the pot.

As expected, the system is being gamed. Beijingers immediately activated China’s most forceful weapon: The family. Yang Hongshan, deputy director of the department of urban planning at Renmin University is not surprised by the huge numbers of applicants. “Car buyers will mobilize their close relations, such as their family members, to take part in the drawing,” said the scholar. But the house has better odds. As the months wear on, you would need a family of 50 or more to stand a chance.

More sinister schemes were devised: Beijing’s courts were turned into accessories of fraud. Fake debts were created, with a car as “collateral”. The court awarded the car to the alleged “lender.” That was quickly stomped-upon. Now, the only way to get court-cashiered cars (without the need for a plate) is through public auction. On April 4, a picture of a man bidding for a car appeared in Global Times. The story is gone. The front-page was cached by Google. The link goes nowhere.

If in doubt, keep it simple: License plate theft is on the rise in China’s capital. This prompted Beijing’s finest to activate 2,600 video cameras to find purloined plates. Fines are relatively mild: A maximum of $275, and the loss of a license, if you have one. What good is a license anyway, if you can’t have a car?

The economy of Beijing pays a much higher price. Earlier in the year, Beijing’s Municipal Commission calculated that Beijing’s car dealers (in some of which the city itself is heavily invested) will have lost more than $9 billion of sales this year. Wang Shuxia of the commission based his calculation on an estimated 580,000 cars sold. His estimate is based on 240,000 replaced cars (which do not need a new plate) and 240,000 cars for first time buyers (which do.)

This projection may not pan out. Replacing a car assumes getting rid of the old one. China’s new car dealers have yet to learn the art of the trade-in. Now, as much as they are dying to sell you a new one, what would they do with the old? The used car market is dead in Beijing. Buyers of used cars need a plate, and the plate does not transfer. Before you find a farmer in the countryside as a willing buyer, you rather drive the old one a year longer. Also, if the trend of winning a plate and not buying a car continues, there will not be 240,000 new cars. Car buying used to account for 26 percent of retail transactions in Beijing. That number will most likely be revised.

Criticism of the system is on the rise. More so than elsewhere in the world, you aren’t a successful car dealer in Beijing without guanxi – connections. The booming car trade attracted some well connected billionaires.

The tone of the reporting by state media (China Daily is owned by the Central Government through Xinhua, Global Times is owned by the party through People’s Daily) is getting more strident with each new round of lot drawing.

Chen Jianguo, deputy head of the industrial coordination department of the powerful National Development & Reform Commission (NDRC), warned in February that purchase restrictions are not only insufficient to deal with the congestion problem, but could harm consumers and the industry overall. Just about each province in China, plus the Central Government, has their hands in one or more car companies. Chen recommended something familiar: Usage taxes.

The decision of Beijing’s municipal Commission of Economy and Information Technology to accept a proposal to exempt pure EVs from the lottery can be seen as a shrewd deflection of the mounting criticism. Others can view it as a chance to turn Beijing into a true green city. Others again may think it is the culmination of a long hatched plan to pry the car away from its driver. Whatever it is, it will be interesting to watch.

 

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16 Comments on “TTAC Dossier: Chinese Roulette, Or The Tao Of Beijing Car Ownership...”


  • avatar

    “So”, a lot of people who think they need a car will have to think otherwise.

    Maybe just get out of Beijing?

  • avatar
    Dr. Kenneth Noisewater

    I’m sure the administration is taking notes.  This is what trying to put the individual liberty to travel genie in the bottle looks like.

  • avatar
    Jonathan I. Locker

    Bertel,
    I really enjoyed the article, and the “weekend magazine” long form style.  Two questions come to mind.
    1. Although only 10% of the winners actually bought cars with the new plates, do all of them purchase cars, or does something else happen?
    2. Have people figured out how to sell the plates on a black market? And what happens if they are caught?

    • 0 avatar

      1.) As written in the story, if they don’t buy the car within 6 months after the issue of the plate, the plate goes back into the lottery.
      2.) No reports of that yet. You can’t register a car with a plate that is not in your name.

      • 0 avatar
        th009

        So are people just applying for plates now, thinking that if they get lucky, THEN they’ll worry about where to find money for a car?
         
        And if 5,000 plates do end up unused and go “back into the lottery,” does that mean there will be 25,000 plates handed out that month?

      • 0 avatar

        Well, you need to understand the Chinese psyche (we never will, let’s try)
        1.) When something is rare, they want it. For instance, I have not seen a country that is so fixated on procreation as one-child-policy China. I suggested to introduce the one child policy to the lands of my wife’s and mine, to solve the aging population crisis of Japan and Germany. No traction. Tell you the truth, they would probably obey.
        2.) They are quick with numbers. They know that iof they enter the lottery early, they have better chances to win. Whatever it may be.
        3.) They love to gamble. It’s the first legal lottery they can enter. And it’s free!
        4.) If they win, they have something not everybody has.
        See, the Chinese psyche is not that different. At least as far as I can understand it.
        As for what happens with the unused ones, no memo on that. They just get back in the pot. I guess they will be put back in circulation. The rule is: 240,000 plates, no more.

      • 0 avatar
        th009

        Thanks, Bertel.  Having Chinese in-laws, that actually does make sense to me …

  • avatar
    eldard

    Why don’t they just tax the oblivion out of car registrations and gas prices? That’s a better way to solve any congestion and the city gets a load of income.

    • 0 avatar

      That’s what the NDRC recommends. For some reason. they don’t want to. I touched on that. Shanghai does it. Beijing and Shanghai are often on different wavelengths.

    • 0 avatar
      wsn

      That’s what Shanghai is doing. But somehow politicians in Beijing want another approach.
       
      You see, China is facing a great divide of wealth. The rich is super rich and getting richer; the poor seems to be getting poorer. And that’s a timed bomb. Politicians desperately wanted to ease the anger of the mass, without actually giving up anything from their own pocket. This new approach is just another such attempt. Not unlike how Americans had wireless bandwidth lotteries.
       
      In Beijing, people can be categorized in 3 ways: power, wealth, years living in Beijing (there is a total of 8 combination). The powerful people won’t be restricted by this rule (or any other rule). This new rule is intended to target and limit the new riches who just moved into Beijing and appease those not-so-rich but long time residents.

  • avatar
    Roland

    I’m still wondering why China decided to go so automobile-heavy. They had other options.

  • avatar
    twotone

    Beijing and Shanghai are easy — try buying (or affording) a car in Singapore.

  • avatar

    As of today, the odds of getting a license plate are 1 in 29.


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