The Rising Cost of Everything: Perspectives from the Back of a Shanghai Taxi (Fare)

Back in 2002, when I first started riding in Shanghai taxis on a regular basis, the flag-down rate was RMB 10, if I recall correctly. Back then, the dollar was pegged at $1 = RMB 8.2. So, back then, and today, too, that struck me as a hell of bargain: US$1.21 was less than a rush hour bus fare back in Minneapolis. Of course, to the majority of Shanghainese (per capita income at that time was well below US$10,000 per head), of course, it was still a luxury. But the beauty of sprawling Shanghai is scale: back then, as now, there were approximately 45,000 licensed taxis working the city (and a sizable fleet of pirate ones, too), and it couldn’t have been just the dollar-denominated riders, like me, employing them.

In 2006, the city fathers, under pressure from the taxi companies, taxi drivers, and – most important – oil prices, raised the flag-down rate to RMB 11, or US$1.35. The per kilometer charge also rose, by RMB .1, or roughly US$.01/km. As I recall, most of the Shanghai taxi riders I knew were more annoyed at the coins they’d receive in exchange for handing over RMB 20 notes to taxi drivers, than they were by the actual bite of the fare increase.

Two years later, in October 2009, fares were jacked again, to RMB 12 for flag-down. In other words, the price of just sitting down inside of a Shanghai  taxi went up just 20% in two years. Not insignificantly, the RMB appreciated significantly against the dollar during that same peior, lifting the dollar-adjusted fare to $1.76 (up 30% in four years).

Which brings us to Friday, and a new rate hike: RMB 1 was added to the flag-down fee, along with an RMB 1 fuel surcharge, adding up to a 17% total hike on the flag drop. Compared to five years ago, that’s a 40% hike – if you go by the local currency. And if, like me, you measure your income in dollars, it’s up roughly 80% since 2006.

Now look at it this way: the flag-drop rate for a New York City taxi is US$2.50. And if, as looks likely, the Shanghai government continues its every-two-years policy of taxi fare increases, and China’s government continues its revaluation of the RMB against the dollar … then, by 2013, it’ll be more expensive to sit down in a Shanghai taxi than a New York City taxi (incremental distance and waiting charges are still much higher in New York). Now, I’m keenly aware that Shanghai’s city fathers like to measure themselves – and their city – against New York as a means of judging whether they are, in fact, world class. But cost-of-living isn’t one of those measures, especially when your population is decades away from having disposable incomes on the scale of the average New Yorker’s.

Today China announced that its June inflation rate hit 6.4%, a 3-year high. This shouldn’t surprise anyone who shops in Shanghai. At least, for many middle class people, these costs are starting to press down on the improved living standards that thirty years of economic reforms have delivered to China’s middle-class. The proof, as in so many things, can be found in the words of the city’s taxi drivers. State-owned Shanghai Daily quotes several expressing concern that the fare hikes will hurt business (find me another city on earth where drivers would have reservations about a fare hike). My friend Rob Schmitz, Shanghai correspondent for Marketplace Radio, encountered similar sentiments the other day, during one of his own taxi rides.

FYI: 上海的老百姓 translates as Shanghai’s common people, more or less.

 

13 thoughts on “The Rising Cost of Everything: Perspectives from the Back of a Shanghai Taxi (Fare)

  1. There are 23 million people living in Shanghai, I think most would use the public transit than hail a taxi if they need to go somewhere. Last time I ride the bus in Shanghai, it only cost me 2 RMB.

  2. Sean – I don’t disagree with you. My point was merely to give a real-life example of the inflation problem, and how it effects a specific service – albeit, a service that tends to be used by wealthier Shanghainese. Still, I think the example is valid.

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  5. I’ve been longing for this for a while actually – the price increase. Maybe its finally becoming possible to get a Shanghai taxi during rain! :)

  6. Foreigners who are speaking English to an audience of English speakers are douchebags when they mix in unnecessary Chinese. It’s enough to say the common folk instead of laobaixing. The Wapanese do that all the time.

  7. For the record: I am firmly in marketplacerob’s corner on the question of knowing one’s audience – and any related douchebaggery.

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  9. Inflation in taxi fares would be even worse if it were not for Chinese government policies to regulate and subsidize fuel prices. According to FT.com, China’s diesel and petrol prices are 35.1% and 13.9% less than international prices, respectively. (“Fuel subsidies drag on emerging economies”, April 18, 2011, http://www.ft.com/intl/cms/s/0/81a781a0-69d7-11e0-89db-00144feab49a.html#axzz1S3XJIwbW).

    Taxi fares (even including the fuel surcharge) do not reflect international market oil prices. The Chinese government (National Development and Reform Commission) sets national fuel prices. Chinese oil companies generally suffer losses when international crude oil prices rise because NDRC policies on consumer fuel prices do not fully allow oil companies to pass on increased prices to consumers. Their losses are subsidized out of the state budget. While these price limits are derided by critics for “distorting the free market”, the Chinese government has decided that the interests of ordinary consumers take priority over oil company profits.

    However, given the subsidies’ high cost, in the last 3 years, the government has allowed market prices to be partially reflected in consumers’ costs. If government policies were to permit international market prices to be fully reflected in retail fuel prices, then taxi drivers’ costs would go up, and taxi rates would need to increase even further in order to cover taxi drivers’ increased fuel costs.

    To reduce the impact on the taxi industry, NDRC policy allows local governments to raise taxi rates to reflect recent fuel price increases.
    http://www.shanghai.gov.cn/shanghai/node23919/node23923/u22ai42662.html

    Truck drivers have suffered declining margins from increased fuel prices, and in Shanghai independent truckers went “on strike” in April. See “Fuel prices put China’s drivers in reverse”.
    http://www.ft.com/intl/cms/s/0/47e6d13e-6e8f-11e0-a13b-00144feabdc0.html#axzz1S3XJIwbW

    What is causing high international oil prices? Some observers believe that international oil price increases are caused by rising demand from emerging market countries, while others believe it is caused by speculation from financial investors. (http://useconomy.about.com/od/commoditiesmarketfaq/p/high_oil_prices.htm). No doubt the piling in of hedge fund investors and speculators exacerbates fundamental trends.

    Environmentalists cheer increased fuel prices because it tends to reduce demand. In Hong Kong, fuel prices are taxed and costs several times more than in Shanghai. Hong Kong taxis have all converted to LPG, while Shanghai still primarily relies on diesel and gasoline; the experiment with LPG has not succeeded

    Finally, London taxis are way more expensive than either Shanghai or New York. In fact, many “world cities” have higher taxi rates: See http://www.priceoftravel.com/555/world-taxi-prices-what-a-3-kilometer-ride-costs-in-72-big-cities/ (as of April 2011). I see Taipei taxi prices are still higher than Shanghai’s, so the half-a-million Taiwanese living there must think they are getting a bargain. 好便宜哦!

  10. Maybe time for Shanghai to go over to electric taxis like they have in Shenzhen and in Hangzhou? I caught one a while back in Hangzhou and there wasn’t much of a difference from normal taxis, apart from costing one kuai less due to there not being a fuel surcharge and being quieter. Running on the road was just as smooth, although the smaller vehicles could be a problem if you wanted to get 4 passengers in comfortably.

  11. Usually it costs 17 RMB from company to my home, last night, it costs me 19 RMB. It is my first taxi experience after taxi fare rising

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