Chinese Law Prof Blog

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George Washington University Law School

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Sunday, March 25, 2012

What's the deal with Beijing taxis?

Anyone who spends much time in Beijing knows that in the last few years, it's been harder and harder to find a cab. The reason is much less hard to find: more Beijingers are able to afford cabs, and the rate, fixed by law, has not been changed since 2006. Yes, 2006! And this despite the fact that fuel costs have risen from 5.09 yuan/liter to 8.33 yuan/liter. Moreover, the rate for sitting still in traffic hasn't changed, either, even though taxis spend a lot more time sitting still in traffic now than they did in 2006. So: demand up, supply down.

The Beijing government has taken a few steps to fix the problem. In 2009, they allowed a 1-yuan fuel surcharge for rides of over some short distance (I forget how far - basically, the distance covered by the flag-drop fare), and in 2011 that went up to 2 yuan. Needless to say, this is a very crude way of compensating for higher fuel costs, since it is almost unrelated to distance driven. Still, it meant an extra 1 and later 2 yuan per trip for most trips, and was collected in a per-trip basis, thus operating as an incentive to drivers to get out there and drive.

This is, alas, exactly what the latest measure to cure Beijing's cab crisis does not do. The National Development and Reform Commission has announced that all cab drivers will be given a fuel subsidy of approximately 300 yuan per month. As far as I can tell from the news report, this will just be handed out to all taxi drivers regardless of how much they drive.

I'm happy to see taxi drivers earn more, but this subsidy, since it doesn't change incentives at the margin, will do nothing to get cab drivers to spend more time on the street picking up fares. Whatever economic calculations were driving their behavior before will not change. Just as before, taking your cab out to pick up passengers on any given day presents the cab driver with the prospects of earning X yuan and spending Y yuan. The fact that the NDRC cuts you a check for 300 yuan at the end of each month doesn't change that at all.

The real question is, why doesn't the government adopt the obvious solution of simply raising cab fares until increasing supply meets decreasing demand (technically, quantity supplied and quantity demanded respectively)? Why all this monkeying around with clumsy fuel surcharges and subsidies that won't change behavior? The only plausible answer I've heard proposed is that this is a way to keep official inflation figures down; if the inflation index measures cab fares, they will appear not to have changed in six years. I suppose it's also possible that it's a scheme by the auto industry lobby to get people to buy cars, since it's ever more dicey to rely on taxis to get around.

The one thing that to my mind really prevents New York from being a world-class city is its ridiculous taxi system that makes it often hard to get a cab; Beijing used to be terrific in this respect, and it's sad to see it going downhill.

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Now the fuel surcharge has gone up to 3 yuan, see details at http://www.yangtse.com/system/2012/03/31/013056660.shtml.

Posted by: victor | Apr 2, 2012 7:50:30 AM

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