Traffic congestion in China is getting out of control. As a result, municipal governments are beginning to enact varying methods to restrict the number of cars on the road by assigning an allocation system to the issuance of new license plates. The number of registered cars, buses, vans, and trucks on the road in China reached 62 million in 2009, and is expected to exceed 200 million by 2020. Currently, there are four Chinese cities limiting car registrations: Beijing, Shanghai, Guangzhou, and Guiyang, capital of Southwest China’s Guizhou province. Other cities, such as Wenzhou and Nanjing, indicate they may soon follow.
In Shanghai, for example, with a population of 23.5 million, issuing license plates through auctions has been used since 1994. In the first 14 years of use these auctions raised 14 billion yuan, and this number is increasing. Recently, the cost of a license plate in Shanghai was $14,480, a record high. Presently, Shanghai releases only 9,000 car plates per month. This scarcity of license plates has forced drivers to buy a license plate before purchasing their car.
In Beijing, with a population of 20.7 million, 1 million-plus people competed for less than 20,000 registration certificates qualifying them to buy a car through a lottery system. This gave only 53 applicants, approximately 2%, the opportunity to obtain registrations. If an applicant fails to win two months in a row, however, then his name is automatically re-entered in the next lottery. This system has gradually increased the number of lottery applicants and decreased the odds of winning as new registrations are fixed at around 20,000.
Guangzhou, with a population of 16 million, issues 120,000 licenses per year, 50% by lottery, 40% by auction, and 10% to qualified environmentally friendly and energy efficient cars.
Since new license plates are expensive and scarce, there’s an active secondary market in reselling license plates. The Shanghai government, in an effort to reduce scalping, has required motorists to keep their license plates for a minimum of three years before they can re-sell them. This is a significant increase from the previous one year holding period and is designed to prevent the scalping, and the subsequent increase in value, of license plates within the city.
Although some argue that license plate restrictions have had little effect, Shanghai’s pioneering efforts have resulted in just 2 million registered cars versus 5 million registered in Beijing, which commenced vehicle restrictions on the New Year of 2011. Without restrictions, it’s estimated that 7 million cars would be in Beijing by 2015 where roads are only equipped to handle 4 million cars.
As you might imagine, there’s a number of scams to try and get around these license plate restrictions. One scam, according the China Hearsay, involves collusion between a secondhand car buyer and seller. The seller constructs an imaginary debt that the seller “owes” the buyer for which the car is used as “collateral”. The seller “defaults” on the loan. They both go to court and the “debtor,” who is actually the car seller, is ordered to hand over the car to the “lender, the car’s buyer.” Along with this transfer of ownership comes the already registered license plate. This works because it’s difficult to prove that the debt is not legitimate.
New car registration rules sometimes legislate obtaining a car license prior to purchasing the car. Beijing has such a rule and makes exceptions only for property transfers as a result of marriage or inheritances, or ownership transfers through court adjudications.
Some people get around registration restrictions by going to another city and obtaining a license in that city. For example, one car owner, at the suggestion of the car dealer, bought a license plate in Hebei province, which adjoins Beijing. If he’s then able to win a license plate in the Beijing lottery, then he can replace the Hebei plate. Langfang, a city close to Beijing’s Daxing district, only requires a photo and 800 to 1,000 yuan for a temporary residential certificate. This certificate then entitles you to obtain a license plate. Obtaining the license plate only takes a few hours. Beijing authorities are not happy with this practice and have adopted punitive measures for Beijing residents caught using this method to obtain a license plate. However, this practice continues in Langfang and in other cities which are not subject to car license auctions or lotteries, especially where the car owner has relatives. This system works well as long as you don’t need your car in the central areas of Beijing during weekday business hours, when a Beijing license is required to drive within the Fifth Ring Road between 7 AM and 8 PM. Outside of these times, and on weekends, there’s no restrictions. This is one reason for the heavy weekend traffic downtown.
Others have obtained temporary plates by leasing them from car rental companies and some dealerships who charge a monthly fee, normally around 3,000 yuan. Individuals also sometime lease license plates, but this practice is usually among friends and family members so as to avoid possible government scrutiny.
In Beijing, some car dealerships themselves can sell a license plate for a fee of up to 100,000 yuan. This price is most often included with the price of higher end luxury cars. This is usually done because some dealerships, in anticipation of the license plate restrictions, which took effect at the New Year in 2011, bought second-hand vehicles for their plates and then transferred them to the new cars they sell.
In some instances drivers buy cloned license plates. These usually come to light when the real owner of the license plate receives tickets for violations he didn’t commit. In addition to cloned plates, false plates are also produced and sold to unlicensed drivers. However, if you drive with a cloned or false plate the police usually confiscate the driver’s car and initiate criminal prosecution. As a result, the use of false license plates still occurs, but on a small scale.
The revenue from the sale of license plates has largely been used for municipal improvements. In Shanghai, for example, the proceeds from auctions has been spent improving the city’s subway system as well as the construction of the mid-ring freeway project. In Guangzhou lottery proceeds are used for public transportation improvements.
According to the Ministry of Public Security, as of January 2013 there were 200 million licensed car drivers in China, , a 26.47 million increase from the previous year. As the number of drivers in China increases, the use of license plate restrictions is becoming more prevalent in an effort to control traffic within the bounds of a city’s infrastructure. Therefore, the practice of obtaining a license plate prior to buying a car is expanding across China.
Alan Refkin
If you are currently not receiving our newsletters or blogs and would like to, please sign up atinfo@thornhillcapital.info, which will also give you access to past editions of our blog’s. We would also be pleased to answer any questions you may have by contacting us at info@thornhillcapital.net