Beijing’s Cabs and the Struggle to Control Inflation

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Taxies are seen lining up to fill at a filling station in Beijing, China, March 22, 2011. (Photo: Yang le / AP)

When I first came to Beijing 15 years ago, the toughest part of getting a taxi was finding a driver who was awake. The Chinese capital was much slower paced then, and cabbies would often follow up their lunch with a one or two hour siesta. The hours of 11 a.m. to 2 p.m. were a taxi wasteland, unless you were willing to risk waking a snoozing driver.

These days the biggest problem for passengers is finding a cab, period. At rush hour people crowd around intersections, lunging after taxis like zombies after fresh human brains. The reasons for the shortfall offer some insight into the difficulties faced by policymakers as they try to manage inflation while preventing a hard landing for the Chinese economy. The simplest explanation for the problem, as economist Mao Yushi explains in a piece for the Financial Times Chinese site, is that taxis are too cheap.

Like other major cities around the world, passengers here complain about taxi drivers who can be gruff and drive like maniacs. Drivers are required to have a Beijing hukou, or residency permit, which means that they are all locals. But Beijing is a huge place, encompassing 6,500 square miles, and vast areas of countryside, satellite towns and villages. So the fact that taxi drivers are technically locals does not necessarily mean they know where they are going. GPS systems are rare. And the pace of construction in Beijing only makes things worse. Roads are torn up, bypassed and rebuilt with surprising speed and frequency. If you don’t travel to an area for a month or two, it can look quite different upon your return.

But one thing that cabs have going in their favor is price. The flag fall is usually 10 rmb, 11 rmb at night ($1.55/$1.75) for the first 3 km, and then 2 rmb (30 cents) per subsequent kilometer, up to 15 km, at which point the price rises to 3 rmb (45 cents). By way of comparison, a 5-mile trip in Beijing would cost about $3.50. In Chicago it would cost you more like $10 before tip. Beijing’s rates have been in place since 2006 (story in Chinese), and the only increase has been a 2 rmb fuel charge added this spring for trips over 3 km. That makes cabs a rare bastion of price stability in a place where most everything else—food, fuel, housing, wages—is going up. A 5 gallon jug of water that cost 11 rmb in 2007 now runs 19 rmb.

Mao notes that some people have told him the issues lies with the many fees that drivers are forced to pay taxi companies. Those are indeed a problem. The investigative journalist Wang Keqin wrote in 2002 about how many Beijing drivers are pray to exorbitant fees to their employers, who build their companies through connections while relying on drivers to fund capital expenditures, like new vehicles. But Mao notes that while the cab monopoly is a problem, it is separate from the issue of the ongoing cab shortage.

In other cities in China, the cab market is handled differently. In Shenzhen and Shanghai, the cabs are just more expensive. In other cities, like the southeastern factory town of Wenzhou, where I traveled last week, the cabs are effectively more expensive, because none of the drivers agree to go by metered rates. Instead every trip is a negotiation between passenger and driver, and the trip price starts at around 100 rmb. Beijing cab drivers have less leeway. Enforcement is more strict in the capital, making it hard for drivers to ignore metered rates. And a strike, which drivers in several Chinese cities resorted to in 2008, would not be tolerated here, Beijing cabbies say.

The simple solution would be to raise taxi fares to better balance supply and demand. But inflation hit a three-year high in July, and while it has cooled in recent months, the government would still want to refrain from the inflationary signal that a taxi fare hike in the capital would send. Into this void have stepped legions of unregistered “black cabs” that stake out fares around office buildings, in the suburbs and any place where people are trying to find a way home. Their rates are higher, and as underground operators they can be a sketchy proposition. But they are often available when legal cabs are not.

There are other alternatives. A commuter can use Beijing’s buses and ever expanding subway lines, dirt cheap and usually very crowded. Those with the cash can buy a car, assuming you win the lottery for a license plate, but good luck with the traffic and finding a place to park. Those conditions have helped increase the popularity of electric bicycles, which are now everywhere. I’ve opted for an old-school Beijing solution and bicycle whenever possible, though it can be hard on the lungs.

Ultimately, Beijing can’t function without taxis, and passengers and drivers alike could benefit from a better system. “Beijing is the capital city, and as the taxi industry gradually grows chaotic, it causes great inconvenience for the daily lives of local people,” Mao writes. “It also reveals the weak abilities of the managing departments who lack resolution and delay the decision that must be made.”