Is public transportation a good substitute for private vehicles in Chinese cities?

• Public transit lowers auto sales, especially low-end. • Novel IV approach using neighboring city data. • Highlights unseen shift towards less fuel-efficient cars. • Suggests nuanced policies to maintain fuel efficiency. There is abundant evidence showing that increased accessibility to public transportation eases traffic congestion in cities. The most likely explanation is that some commuters, who were previously utilizing private automobiles, switch to public transport as the latter becomes more accessible. However, given the large variation in automobile models, it is possible that certain types of automobiles are better substitutes for public transport compared to others. In this study, we examine how public transportation affects sales of new automobiles in Chinese cities. We first find that improvements to public transport have an overall negative impact on sales of passenger automobiles. A second finding is that the decrease in sales is mostly incurred by smaller engine capacity and more fuel-efficient automobiles. This finding highlights a previously unintended policy consequence of investment in public transport: the fleet composition of new cars sold tends to shift toward heavier and fuel-inefficient models. This outcome may run counter to other policies, such as air quality management, CAFE standards, and climate change mitigation. As such, there is a need for governments to complement public transport policies with automobile ownership policies to encourage the continued uptake of fuel-efficient models.