Car prices in China may be falling, but in auto-crazy Shanghai the cost of a licence plate is more than making up for any lowering of forecourt price tags.

At almost 40,000 yuan (US$5,000), the strip of plastic now costs more than a decent used car.

The towering fee is the result of the Shanghai government's efforts to limit the number of new vehicles hitting the streets.

Each month a fixed number of plates are put up for auction, but, even with the number of plates issued doubling every year for the past three years, prices are spiralling and opportunists are sucking them up as an investment to sell on at a profit.

"If the bidding this month (in the third week of July) is as keen as that of June, we expect the price to break the 40,000 yuan barrier," said Wei Dan, a sales director at Shanghai Jiuhua Auto Co, a Shanghai dealer for ChangAn Ford Automobile Corp, a joint venture between Chongqing's ChangAn Auto Group and Ford Motors of the US.

Supply and demand

According to results from the June bidding, 8,478 bids were submitted for the 4,500 plates up for grabs. Guided by previous months' prices, all the bids fell within 500 yuan (US$65) of each other with the lowest bid being 39,500 yuan (US$4,935) and the highest almost 40,000 (US$5,000)

According to Wei, supply is likely to remain tight as people hold on to their cars longer and many first-time buyers come to the market bidding for plates for cars they plan to buy in the autumn, when auto makers traditionally release new models.

Prices are still below the all-time high of 45,492 yuan (US$5,700) set in April 2004, but Wei believes that on the current charge it is just a matter of time before that mark is passed.

"I am confident prices will continue to rise. Based on the sales projections of auto dealers we expect licence plate prices will break that record before the end of the year," he said.

It is these expectations which are fuelling a rush by prospective motorists: Even if they eventually decide not to buy a car, they are confident they will be able sell the licenses at a profit in the future, a philosophy that is also attracting speculators to the market, further pushing up prices.

The situation has had an effect on some, who, though able to afford a car, balk at the cost of the license plate.

Tang Wei, a self-employed driver, said that if he did not have to use a car for work he would not have bought one.

"If it was just a case of using it for leisure and to get around the city then, with the license plates costing as much as they do it's just not worth it," he said.

But car dealers told China Daily there has been no slow down in sales.

In the first five months of this year, 79,000 new cars were registered with Shanghai plates, an increase of 24.5 per cent over the same period last year.

"So far there has been no big change from our projected sales figures," said Gao Peng, a car dealer from Shanghai Volkswagen.

Shi Lijie, a representative of Dongchang Second Hand Automobile Market, said they were not experiencing any changes either, although he personally supported a high license plate price to limit the number of cars on the road.

"The roads here are so crowded already, I agree with the high prices in principal but I'd love to know what all the money gets spent on," he said.

"It really should go on improving the road system and making it better for the people who have paid all that money in the first place."

Cheap alternative

One reason for the lack of any effect on car sales is that, although the Shanghai license plate offers certain perks cars wearing plates from out of town are banned from Shanghai's elevated highways between 7 am and 9 am, and 5 pm and 7 pm there has been a boom in sales of plates from nearby cities.

For those happy not to use the highways during the rush hour, or those willing to risk the 200-yuan (US$25) fine for using the roads when they are not supposed to, a neighbouring Zhejiang plate costs just 3,000 yuan (US$375) and Jiangsu plates can be bought for even less.

Chen Jian, who works for an import export company in Shanghai, is one of those who has opted for a plate from out of town.

"With the money saved on the license plate I can get a much better car. Ok, there are some limitations, but even if I did drive on the elevated freeway at rush hour, they would have to catch me 200 times for the fines to match the cost of buying Shanghai plates," he said.