Chunyun: The Dilemma of Price

Chunyun, meaning transportation during Spring Festival vacation, always causes severe problems in China every year. One of those problems is the difficulty of obtaining tickets of trains and planes. Railway ticket is particularly hard to get, because the price is pretty low due to government control, railway transportation becomes the first choice of low-income population such as labor workers and the majority of college students. According to the State Planning Agency at a press conference in 2014, during Spring Festival, there are 42 million trips by air and 258 million trips by train, overwhelmingly higher than other seasons. Unfortunately, those numbers are still increasing every year.

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Though the railway system is a monopoly directly under government control, without generating madness of low-income population against the government,  it sets the price of railway tickets much lower than any other markets of transportation (where competition exists). Such a lower price, unsurprisingly, creates a huge gap between the actual price and the equilibrium price during the time of Spring Festival transportation headaches, which are worsened when more people stand in long lines in order to buy just one ticket. A Chinese economist, Mao Yushi, suggests a strategy, which increases the price of railway tickets in Spring Festival to reduce the stress of Chunyun. According to him, the demand is a lot higher than it should be. People have to queue up to buy tickets, and the opportunity costs of waiting in line compensate or even exceed the increase of ticket prices if such increase is allowed. One more problem to be added, is the flow of revenue from government to those ticket scalpers, who trained themselves especially capable of getting extra tickets and sell them in skyrocketing prices. The point is that, even the government mandatorily sets up a lower than normal price, the market finds some way to work around it. And the consequence, is that the revenue which should be earned by the government, goes directly to those ticket scalpers.

In face of the shortage of train tickets, the low-income population must find alternatives to come back home. The price of taking buses increases too at this time, partly because of the  substitution from railways. However, bus is not suitable for really long-distance travel and most travelers have distance of traveling way beyond the limit buses can efficient for. Flight ticket does not have an overwhelming increase at this time because most train riders find it to be too expensive to afford.

Moreover, if government lets the price increase to the equilibrium, the shortage of railway tickets could not happen, but people would blame the government for their inability of traveling back home affordably because the railway system is directly owned and controlled by the state. Chinese government is in such a situation of dilemma that they have to keep the price low and leave the market being crazy. A better approach to this problem would be putting more effort into developing the economy of those destination provinces during Chunyun. the major reason for this huge flow of travelers is that the laborers in low-income provinces seek opportunities in better-paid provinces. Filling the gap of developed and under-developed provinces would cure the headaches, but the government tried, due to various reasons such as bureaucratic inefficiency and corruptions, it never manages a way to do so.

Work Cited,

http://www.bloomberg.com/bw/articles/2014-01-16/chinas-massive-spring-festival-travel-forecast-3-dot-6-billion-passenger-trips

http://maoyushi.blog.sohu.com/109586841.html

The Future of US Rails : High Speed or Not?

Though many countries have developed high-speed rail such as Britain, China, France, Spain and Japan, the process of developing high-speed rail in the United States seems slower than normal. The effort of raising US railway speed can be dated back to 1934. In history, The Pioneer Zephyr set a speed record of 112.5mph, and its success made other railway companies join speed-raising competition to attract more passengers. However, after the Naperville train disaster in 1946, the US   government forced every company to install automatic train control (ATC). Due to the high prices of ATC, railway companies had to slow down the competition of building high-speed rails.

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After years of stagnation, in contrast of the development of high-speed rails in other nations, the U.S. only has one high-speed rail nowadays, Acela Express, serving in the Northeast. Fortunately, high-speed rail project in California beginning in this year is regarded as the first step of the actual development of high-speed rail in the U.S. This railway will connect major cities in California, and can be fully completed as early as 2029. According to the data from US High Speed Rail Association, if the high-speed railway system is constructed completely (across the whole nation), there will be millions more jobs and 19 billion revenue per year from the new system.

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Regarding the general public’s preference towards means of transportation, a survey (refer to the link attached below for the source of survey) shows that, 79 percent of respondents prefer taking high-speed train than airplanes if high-speed rail exists and 61 percent would choose rail even for the same price. Besides the obvious price advantage, people prefer high-speed trains because of the saving of time to get to airport and arrival delay. All those show high-speed trains, as the means of long-distance transportation has opportunity cost advantage over airplanes.

Despite of the advantages of high-speed rail, the building is slow and facing a lot of obstacles. Only the first line of California high-speed rail project has been started because of the tremendous construction cost. For other parts of the nation, there are still no signs of showing that building such a profitable and economic transportation system interests politicians and general public. For example, the plan to raise the speed of the line that connects Portland, Seattle and Vancouver was halted in 2012 because of safety concerns from Union Pacific Railroad. While other major developed nations have enjoyed the speed and welfare of high-speed rail, the U.S. is still driving its trains slowly into the future.

Work Cited:

http://en.wikipedia.org/wiki/High-speed_rail_in_the_United_States

http://www.ushsr.com/benefits/economic.html

http://www.nbcnews.com/id/42270740/ns/travel-travel_tips/t/trains-versus-planes-survey-shows-pull-toward-tracks/

http://en.wikipedia.org/wiki/High-speed_rail_in_the_United_States

Controversial Luxury Market in China: Increasing Buying Power and Restricted Market Powers

From the beginning of the year of goat, luxury brands launched their products featuring design based on Chinese zodiac for Chinese New Year in order to attract more Chinese customers.

On a general assumption, since the lunar New Year is the most important festival day for Chinese people, the salesmen from the luxury brands would expect to see an increase in sale. Also, because of the steady income rise of Chinese middle and upper class, more purchasing power is going to the luxury market. Marketing departments in those companies see and respond to this trend by offering limited editions and products designed based on Chinese cultural symbol.

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However, the market of luxury in China this year suggests a major counter-evidence to this assumption. The first reason that the assumption is broken is the changing political atmosphere. Hong Kong, a major place for mainland Chinese middle class to shop luxury products, endures political disorder due to protests. Also, the antagonism of local Hong Kong residents against mainlanders is also growing fast and impedes buyers from mainland, who, if wanting to buy luxury products within borders, have to pay a skyrocketing tax. In addition to that, Chinese government, in order to change its image, conducts several political actions fighting corruption. Though the effectiveness of those actions is still in question, Chinese government has unquestionably reduced the sale and profits of luxury companies in the market of China.

       Though those events seem to be accidental, they do reveal some essential aspects about Chinese luxury market. Chinese middle and upper class have the purchasing power but do not have easy ways to buy luxury products. A new business comes out of the difficulty faced by Chinese buyers who can and want to buy luxury products but cannot due to taxes or political environment. This business is called “Daigou” in mandarin, which basically means “asking somebody else to buy the product overseas and carries or ships back to China as luggage or package to avoid taxes and tariffs.” Admittedly, some people might argue that this business makes use of loopholes of current laws but it certainly improves the availability of luxuries. Buyers get their products at much lower price and sellers earn money by using their convenience. According to the investigation in 2013, there are 93% online buyers having experience of Daigou and 44% using Daigou more than 3 times a year. Also in 2014, the market size of this industry reached 12 billions US dollars. This trend, though not quite the same, reflects a similar situation to smuggle which happens when external force steps into a market to impede transactions but market forces, both from the demand and supply sides nevertheless bring the market back to its equilibrium in whatever possible and profitable ways.

Work Cited:

http://www.scmp.com/business/economy/article/1722011/chinese-new-year-unlikely-lift-luxury-brands

http://www.cnnic.cn/hlwfzyj/hlwxzbg/201409/P020140901332431510284.pdf

http://jingdaily.com/celebrate-chinese-new-year-in-style-jing-dailys-year-of-the-sheep-luxury-gift-guide/