Market broadsided by surprise car sales quota

Consumers should be kept abreast of measures to tackle pollution, traffic

Authorities in Shenzhen, Guangdong Province, caught the public off guard on December 29 with the surprise announcement of limits on car sales, effective from 6 pm on the day.

According to the terms of the notice, sales will be capped at 100,000 vehicles annually over the next five years.

Many reacted indignantly to this news, deriding local authorities' ham-fisted communication skills. This reaction is all the more understandable since local authorities had previously suggested that it was unlikely to curtail car purchases. Specifically, local mayor Xu Qin pledged last January that Shenzhen would not impose sales restrictions or limit vehicle use. In November 2013, Wang Guobin, deputy director of Shenzhen's public security bureau, indicated that the government would seek suggestion and comment from the public prior to instituting quotas or other restrictive measures. Wang also soothed the public by saying the government would not take abrupt action on such matters. Obviously, these promises have come to nothing in light of the city's recent declaration.

This is not to suggest that authorities rushed through with their decision or expected a muted response from the public. In fact, to prevent a buying panic, police forces and tax officials were reportedly dispatched to local auto dealerships to keep order.

On the surface, the actions of municipal authorities in Shenzhen underscore the government's determination to tackle pollution, congestion and other car related problems. Administrators elsewhere though should ask themselves whether the approach taken in Shenzhen represents the best course of action.

Shenzhen is not the first Chinese city to cap car sales. Seven other cities such as Beijing, Shanghai, Guangzhou and Tianjin have all carried out similar policies. However, Shenzhen has set a troubling example by giving the market almost no time to react; whereas other cities left at least several hours, or longer, for consumers to consider their own needs and ability to purchase a vehicle before quotas took effect. This runs counter to recent reform trends aimed at liberalization of market forces.

Furthermore, traffic-related regulations approved in October 2011 require the Shenzhen government to announce new measures in advance and extensively seek suggestion from the public before any decisions are made. These regulations state that policies should be announced no less than 30 days prior to implementation. Recent actions in Shenzhen make a mockery of such stipulations. Surprise policy rollouts give consumers reason to doubt the willingness of officials to follow their own rules and instill reasonable expectations. Without clear direction, normal market functioning may be undermined, leading to rash purchases, investments and business decisions.

Another question worth considering is whether car purchasing restrictions can really improve traffic conditions and other problems on China's increasingly crammed roads. Urban vehicle congestion is now seen as an increasingly serious problem in many places, including Shenzhen; yet limiting sales will only treat the symptoms of this problem rather than its true causes. Over the long run, localities should look for innovative urban planning strategies that align with the fact that China now boasts the world's largest automobile market. Even more cars will be on the road in the future, requiring authorities to accelerate infrastructure expansion plans and scientific traffic management programs.

The controversy surrounding Shenzhen's recent decision is easy to understand. To promote rule-based administration and the orderly development of China's market, other cities would be advised to avoid Shenzhen's capricious example.