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Worldcrunch

Supply, Demand And A 25-Mile Holiday Traffic Jam In China

Article illustrative image Partner logo A crowded Shanghai

-Analysis-

In September, China’s National Development and Reform Commission announced that China’s highways would be toll-free during the Golden Week national holiday. To boost domestic tourism, certain local governments, such as in Jiangsu Province, also passed a decree banning price hikes on tourist attractions during the eight-day holiday break, which this year combined the Mid-Autumn Festival and China’s National Day.

Certain scenic spots were forced to reduce ticket prices for the duration of the holiday.

What was the result of these price cuts? According to Gaosu Net, the Chinese highway management company’s website, on the first day of the holidays, 85.6 million vehicles took to the roads. The traffic volume around China increased on average by 20-50%.

There were major traffic jams in more than 20 provinces across the country. The Sujiahang Highway between Suzhou and Hangzhou, two of the most beautiful cities of Jiangsu Province, had a traffic backup of 40 kilometers due to an accident. Sadly, the accident caused a pregnant woman blocked on the road to have a miscarriage, and a Shanghai-Beijing high-speed bus crashed into a container truck and burst into flames, killing six people.

Apart from the traffic, other dramatic holiday news made the front pages. Some 2,000 tourists were stranded at a cable-car station in Huashan Mountain; 20,000 travelers were stranded on Mount Putuo island; 10,000 arrived in remote Lijiang to find no more available accommodation; a sea of absolutely motionless cars was stuck on the road to Jiuzhaigou until midnight. Many scenic sites ran out of food, and queuing for the toilets took more than an hour.

This is definitely not what politicians had in mind when they decided to make the highways toll-free and lower ticket prices at scenic sites, even though Economics 101 teaches you that these are the basic consequences of supply and demand. 

Half of China on the road

According to media estimations, more than 700 million people travelled during this year’s Golden week holiday. Most of the tragedies that occurred are related to this astronomical number.

What made the demand for travel explode during the national holiday? Apart from the fact that the holiday was longer than in previous years, the toll-free highways and low ticket prices certainly played an important role.

The semi-annual Golden Week holidays are the only time many Chinese people take off, usually to travel or visit their family and friends. Compared with the number of tourists during an ordinary period, the Golden Week holidays are like a tsunami.

Given the great variations in demand, a periodic shortage of tourist resources has existed for long time. It is commonplace for the prices of plane tickets and hotels to soar during holidays, for instance. "peak-clipping" (reduction in peak demand), "valley-filling" (increased demand at off-peak) and load-shifting (reducing loads during periods of peak demand, while building loads in off-peak periods) play an effective role in regulating people’s travels.

What is regrettable is that the administration ignored the contradiction of supply and demand during holidays and came up with policies that are against the law of economics. The result is that toll-road and bridge companies, as well as tourist attractions, suffered losses, and the public also paid a tragic price. Arbitrary administrative decisions replaced economic law and in the end, harmed the well-being of society.

“Would you rather pay the normal highway toll, or would you prefer to be stuck in traffic for three hours instead?” “Would you rather pay an extra 30% for a hotel or spend the night outdoors in the cold?” “Would you rather spend an extra 20% to get home in time or spend the night in an airport?” The vast majority of respondents give the same answer. Nobody wants to be stranded on a highway, in the street or at an airport. Let the price mechanism regulate demand. It will maximize the public interest.

The former Soviet leader Mikhail Gorbachev once asked Margaret Thatcher, the former British Prime Minister, “How do you see to it that people get food?” She answered that she did not, that prices did that. Indeed, the only thing the British government does to make sure that its people can feed themselves is to let the market-price mechanism play its role.

China has a population of 1.3 billion people and a strong festive culture. How does it ensure that people’s basic needs are met? There is only one answer: let the price mechanism play its role, whether it is for cars, boats, planes, tickets, highway tolls or hotel rates. The price fluctuation will adjust the demand. People who absolutely need to travel during the peak holiday season, i.e. the richer ones, can pay more. People who are poorer can save travel costs by travelling during the off-peak season.

Adjusting tolls according to peak, off-peak seasons

Some people hold the theory that highway traffic congestion was not caused because it was toll-free, but because of bad management. They forget that in the competition for a rare resource such as road space, the most effective managing tool is the price.

Some also say that highways should be free on normal days but should have tolls during holidays. These people also forget that the reason for congestion is that there are not enough roads for the people who are traveling. There is an imbalance of supply and demand. Hiking highway tolls to curb the peak demand is only one way of solving the traffic issue. Given how little the government spends on roads, getting more private companies to build roads and bridges is the only solution to solve the contradiction between supply and the demand.

Some point out that there is a huge disparity between the rich and the poor in China. If everything is regulated by price mechanisms, then the rich will win and the poor will lose out. In my opinion, the way to help the poor is by reducing their taxes, not by giving them things free of charge. Having things free of charge causes low efficiency and disorder and harms the well-being of society as a whole. It robs the rich without helping the poor.

*Lin Caiyi is an economist

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About this article source Website: http://www.caixin.com/

Caixin is a hub for financial and economic news in China. Serving high-quality and original content, Caixin.cn focuses on key financial and economic information.

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