Gold (License) Plated: Economics and Car Ownership in Shanghai

The price of Shanghai license plates is skyrocketing, but can it go on forever? Photo by brad choi

By Lisa Sun

A family friend is selling his old car, an outdated Jinbei minivan with a rotting exterior. It’s a tough sell but for one alluring detail: It comes with a free Hu A (沪A) Shanghai license plate, and this tiny piece of metal has never been more valuable. In the current market, it’s worth more than the van. In fact, it’s worth around $12,000 dollars.

For car owners in Shanghai, the first step to getting legally on the road is deciding what kind of license plate to get. If you get a Hu A, you’re allowed on the highways during rush hour. If you get a Wai Pai (外牌), or a license plate from a different province, you can save a considerable amount of money in the short run, but lose the ability to drive on the highways for four hours each day – two hours before and after work. On these roads, it can certainly cost you your productivity and sanity. A few daring Wai Pai cars do defy the restriction, but if caught, they find themselves with a 200 yuan ticket (about US $32).

So why has the Shanghai license plate become “as precious as gold?” That’s a question best answered by some fun history on local government regulation and Econ 101.

In 1994, the Shanghai government wanted to begin limiting the number of cars on roads to ease congestion. To do this, they introduced an auction system wherein car owners bid for the Shanghai license plates – the auctions are now held on the third Saturday of every month.  You can make three bids at 100 yuan per shot, and the highest bidders get the plates distributed by the local Shanghai government. The business is not insignificant: In 2010, it is estimated that revenue from the auctions amount to 4 billion yuan, or in excess of US $634 million. And despite a lawsuit from a seasoned lawyer, the rambunctious auctions have frenzied on with nobody having a clue where the money goes.

An Investment Opportunity, or a Bubble?

Since the auction’s establishment in the 1990s, average prices of Shanghai license plates have fluctuated from 35,000 (US $5,600) yuan before 2004 to 75,000 yuan (US $12,060) in the past few months. Unlike the Shanghai stock market, which has seen depressed returns, a Shanghai license plate has been considered a smart investment. Some go as far as buying the plate before the car.

Take for example my friend, a Mrs. Chang: She bought a Shanghai license plate when her family moved to Shanghai from northern China. Now three years later, the value of her plate has doubled, according to her. With that success, she has encouraged her coworkers to bid on current auctions, one of whom bid 75,000 yuan in a recent auction and regretted that he bid too low.

The key issue is that while the supply of Shanghai license plates has been determined by the local government’s concern for Shanghai’s environment, the demand from Chinese consumers seeking car ownership have skyrocketed. Many view car ownership as an issue of mianzi (面子) or face, a must-have for coming of age  similar to home ownership. And these budding car owners have mighty purchasing power backed by the thrift of their parents and grandparents who have an entire lifetime of savings to draw upon.

But one should question the exuberance over the astronomically priced Shanghai license plates. For one, if license plate prices get so high, and with more Hu A on the streets every month, the benefit of each additional plate can be expected to diminish. After all, the amount of space on highways is finite, and more often than not the highway is just as congested as the roads below during rush hour. Moreover, existing Shanghai license plate owners have no control over how many plates the government issues, or whether Wai Pai car owners risk breaking the rush hour restriction. And if you add in the speculators who hope to profit from the appreciation of the plates, the actual value of the plate in the long run is quite uncertain – i.e., a bubble.

Would you buy a license plate worth more than gold?

Lisa is a TV director with the China Business Network and a recipient of the China News Award. She has lived in Shanghai for 13 years.