Owning a car in China is becoming more expensive as the price for a car license plate in Shanghai reaches a record high. At the most recent auction for license plates, the price for a plate hit 58,625 RMB. Despite the high prices for plates, demand continues to rise. In February 23,391 bidders competed for plates. In March, the number of bidders increased to 24,897.

The chart above compares the price of a license plate in Shanghai to the number of plates.

For more details visit this link (Mandarin).

The new book China’s Economic Supertrends, coming out on April 18th, also covers the Shanghai license plates auctions and Beijing license plate lottery. To read more about this phenomenon, here is a short excerpt from the new book below:

The World’s Most Profitable DMV

Since 1994, in a bid to keep Shanghai’s high-spending consumers from flooding the roads with cars, Shanghai has had a cap on the number of new license plates. At present, it releases about 5,000–10,000 new plates per month, which it sells at a monthly auction.

In many years, the amounts raised from this activity are significant, as much as half a billion dollars or more for the city to use on subsidizing public transport. More importantly, the system acts as a disincentive on the purchase of new cars, reducing road congestion and pollution. It is not without controversy, being opposed by car buyers, while most transit users support it. The controversy mostly arises from a lack of transparency as to how the funds are being used.

In 2007, the once-a-month license plate auctions generated about $500 million in annual revenue, while the 2010 auctions raised a total of $659 million for the city, probably making it the most financially lucrative Department of Motor Vehicles in the world. Most of this money was used to improve local public transportation facilities and subsidize public transportation costs. The amount left over each year is published, but detailed spending figures are not yet available.

With the car craze unabated, monthly auctions during the last two years saw high demand and high prices for plates. In fact, the price of a plate can be as much as eight to 16 months’ salary for a typical office worker, yet consumers seem willing and able to continue to pay the high tax. Sixes and eights are important in Chinese numerology, so plates with auspicious numbers such as 888 are even more expensive and can go for astronomical amounts.

Prices rose to a record average price of 58,625 yuan ($9,305) per plate in March 2012. This price level can actually eclipse the price of an economy car, such a Chinese-made Chery QQ, which goes for about 51,000 yuan ($8,095). With the plate nearly doubling the cost of a small car, many people try to register their cars in nearby provinces where the plate costs are lower. But, in recent years, this circumventing of the rules has become more complex and expensive. In fact, the high plate prices in Shanghai could actually be having a negative impact on the environment: many consumers use the high plate price as a justification to get a more expensive car, which will likely have a higher displacement engine and emissions, increasing China’s carbon footprint and local pollution. It is a good example of the sometimes unintended consequences of an economic policy. On the one hand, fewer cars are on the road. On the other hand, the cars that are on the road are bigger and less fuel-efficient.

Nevertheless, using this plate system, Shanghai has been able to limit itself to 80,000 to 110,000 new cars on the road each year, and make a lot of money in the process. That one of China’s largest cities is able to do this is probably a good thing, considering the Chinese nationwide are purchasing more than 10 million vehicles a year now, and China is the world’s largest market for automobiles. In 2012, Shanghai had about 1.3 million public vehicles and 1.2 million private cars on its roads. Without the controls on new plates for cars purchased by Shanghai’s 22 million residents, Shanghai would likely find itself overwhelmed with cars, much the same way Beijing already is.

Want to read more? Pre-order China’s Economic Supertrends on Amazon.com today.

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