Lotteries vs. Auctions: China’s Experiments in Managing Automobile Growth

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Memo #215

By Jinhua Zhao and David Block-Schachter – jinhua.zhao [at] ubc.ca , dcbs [at] mit.edu

The astronomical growth in the number of private cars in China has led to very visible environmental crises and congestion. But the nationwide increase conceals crucial policy differences between cities that influence effectiveness, revenue, efficiency, equity and public acceptance.  While Shanghai and Beijing each had approximately 2 million motor vehicles in 2004, by 2010 Beijing had 4.8 million versus Shanghai’s 3.1 million.  By 2011, 38% of Beijing households were vehicle owners in contrast to 18% in Shanghai.  Two decades ago Shanghai opted for a monthly license auction to control vehicle ownership, while Beijing had few controls over usage or ownership until the run up to the 2008 Olympics.

When Beijing began controlling auto ownership in 2012, it chose to allocate the monthly quota through a lottery. While such a method is just as effective in controlling the number of licenses as Shanghai’s auctions, it raises no revenue. Shanghai’s auction policy, with a bid price currently over CNY 90,000 (resulting in affordability and equity concerns), has raised CNY 6.7 billion in 2012, more than Shanghai’s government subsidy for public transit, one of the largest systems in the world.

While Beijing’s policy is superficially fairer—every person with local residency (hukou) has an equal chance—in practice it has significant drawbacks. Entry is detached from travel need, which distorts resource allocation. The unofficial market price for licenses has reportedly reached CNY 100,000. Two equity issues arise: all of the vehicle licenses issued prior to 2012 are effectively grandfathered in; and there are significant barriers for non-resident migrants to obtain licenses. Nevertheless, our survey found 83% of Beijing residents prefer lottery to auction.  Even 52% of Shanghai residents indicate that they would prefer Beijing’s system.

In July 2012, Guangzhou adopted vehicle ownership control, allocating 60% of the quota via lottery and 40% via auction. To what extent this hybrid brings advantages of both models remains to be seen.  The emerging policy diversity is made possible both by the urgency of the problem and an evident willingness to experiment.

Dr. Jinhua Zhao is an assistant professor at University of British Columbia, jointly appointed in the School of Community and Regional Planning and the Department of Civil Engineering. He studies travel behaviour and transportation policy, public transit management and China’s urbanization and mobility.

Dr. David Block-Schachter is a Research Associate in the Department of Civil and Environmental Engineering at MIT focused on transportation policy, planning and operations.

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Nightmare traffic: Chang’an avenue in Beijing (photo by Australian Cowboy)

 

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This entry was posted in China and tagged cars, congestion, environment, growth, hukou, licence, markets, middle class, pollution. Bookmark the permalink.

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