Sep 03, 2013 12:40 PM

When a Beijinger Owns 1,000 License Plate Numbers

Beijinger Wang Xiuxia should be in the Guinness World Records book for holding 1,000 license plate numbers, equivalent to 5 percent of new Beijing numbers issued monthly. She rented them out for profit. The case, exposed in late August, involves a number of legal and public policy questions worth analyzing.

Wang's rental business had two models of operation. Before a purchase limit was enacted by the Beijing city government in 2011, she rented identity cards to people from outside Beijing so they could register license plates. After the purchase limit came into effect – a limit that requires locals to enter a lottery system to get a plate – she rented out plates under her own name.

Her first method constitutes deception to obtain an administrative license, for which her motor vehicle registration should be revoked according to the law. Directly renting license plates is also illegal. Because plates are administrative licenses by nature rather than purely private property, they cannot be borrowed or leased. In addition, Wang's rental of license plates constitutes business behavior and should be deemed an illegal business operation.

The biggest question behind Wang's case is actually who is behind it. Wang may be a "double back door" – a backdoor for the renter and a back door to officialdom. Reporters and hundreds of lessees have been unable to find Wang, so questions go unanswered.

A number of cases have proved an iron law: if there is even a small flaw in the system, some officials and their followers seeking profit will exploit it, and the flaw in the system will become a business model mastered by a few people. If a deeper investigation into Wang is made, more secrets will certainly emerge.

The case also allows us to reflect on the legitimacy and rationality of Beijing's traffic control policies. First, should license plates be offered through a lottery or auctioned? Which way can better squeeze out corruption?

Issuing license plate numbers is essentially endowing the right to travel on public roads, an allocation of public resources. How can allocating this resource be done reasonably and fairly? A recent constitutional case in India is instructive. In February 2012, that country's supreme court revoked 122 telecommunications license that a ministry issued using the "first come, first served" approach, stating that awarding the licenses without a public auction was arbitrary and unconstitutional. In April 2012, the court received an inquiry letter from the president asking if all public resources had to be allocated in the form of an auction. The judge's answer was that while auctions are not a constitutional requirement with which the government must comply when granting public resources, if the grant is intended to maximize revenue, not taking bids is arbitrary and unconstitutional.

Shanghai uses auctions to issue license plate numbers, and Guangzhou uses a combination of auctions and drawing lots. Why would Beijing only choose to draw lots? There are three possible reasons. The first is that drawing lots is simple and easy to implement. Second, drawing lots naturally has the appearance of fairness and does not cause criticism. Third, the government may not be short of money and does not care to obtain revenue from auctioning plates.

However, the problem with drawing lots is that it is inefficient. Those who most need a license plate may not get one, but those who do not need one may obtain one. This created an incentive for Wang's rental business. In addition, auctions produce a clear price that can be checked and verified, and this is difficult to fake. Drawing lots, on the other hand, is difficult to oversee, difficult to review, is prone to corruption and will spawn new versions of Wang's business.

A second issue regards a concept from Western property law: regulatory takings, which involves the government exercising excessive control over private property without taking possession, causing a loss in property value. Beijing's policy of limiting license plates essentially constitutes regulatory takings. Using regulatory controls causes people's vehicles to lose a certain amount of value. In theory, the government should pay fair compensation. In China, various levels of government have not acknowledged the concept of regulatory takings. Thus, it is widespread. The government sees it as a matter of course, and there is no discussion of compensation.

The third issue is policymaking foresight.

Beijing's traffic congestion problem is caused by a lack of foresight on the part of the government, and the entire population must bear the consequences. In fact, in the 1990s, there was a public debate in the capital: should Beijing vigorously develop public transport or encourage the purchase of private cars? At a televised college debate competition in December 1993, one team said: "Beijing is a sacred place, but if a large number of private cars flock to the streets, this sacred place will become a parking lot!" This was unfortunately prescient.

Looking back, why didn't Beijing control the number of license plates earlier? There are two reasons. The first is in the late 1990s the capital's tax revenue was not abundant, so the city could not easily build subways on a large scale. With public transport not developed, the government had no reason to limit the number of private cars. Second, developing the auto industry was one important measure for the government to boost GDP. The drive of the GDP-focused policy orientation was more important than building convenient public transport.

In fact, even without controlling the number of license plates earlier, if the government had decided earlier to have a main urban area and satellite cities in its planning, Beijing would not have fallen into the "parking lot" trap.

How can we ensure the legitimacy and rationality of public policy? As the basis for long-term development, how should the system be designed? Western countries have two simple tips: focus on the democratic process and transparency in decision-making, and conduct judicial review of government decisions. Studying these two points, perhaps we will make fewer mistakes.

The author is a law professor at China University of Political Science and Law

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