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Greenlight for Used Car Exports

Seen as a way to boost the slowing domestic auto market, can allowing exports of second-hand cars from China overcome low brand recognition and high logistics costs?

By NewsChina Updated Aug.1

For the first time, in what is seen as a move to shore up the sluggish domestic automobile market, China has agreed to exports of second-hand vehicles.  

On May 5, 2019, China’s Ministry of Commerce (MOFCOM), the Ministry of Public Security and the General Administration of Customs (CAC) started allowing exports of second-hand vehicles from 10 pilot regions, including Beijing, Shanghai and Guangdong Province.  

According to Li Jinyong, director of the Automobile Chamber of Commerce under the All-China Federation of Industry and Commerce, the new second-hand car export policy was released to better meet the demands from countries involved in the China-led Belt and Road Initiative (BRI), as well as address excess domestic production capacity of new vehicles. 

Exporting second-hand vehicles is a major step to deepen BRI cooperation and promote the high-quality development of China’s foreign trade, MOFCOM announced in a recent statement. 

“There are a number of challenges in exporting used cars, but it’s still a great opportunity,” said Luo Lei, deputy secretary-general of the China Automobile Dealers Association (CADA). He told NewsChina that the export of second-hand vehicles will not only drive the growth of domestic auto sales, logistics, storage and finance, but also speed up vehicle upgrading and incentivize vehicle consumption in China. 

Effective Prescription
Data from the China Association of Automobile Manufacturers showed that 28.08 million new automobiles were sold in China in 2018, down by 2.76 percent from the previous year.  Passenger car sales reached 23.71 million units, dropping by 4.1 percent year-on-year, and production fell to 23.53 million units with a decrease of 5.2 percent year-on-year, the first decline after robust growth in the past three decades. 

According to CADA data, 13.82 million second-hand vehicles were sold in China in 2018. But in comparison, there are twice as many second-hand vehicle sales as new car sales in developed countries. “Allowing used car exports might just be an effective way to boost China’s auto market,” Luo said.  

The Chinese automobile market is maturing and has entered a period of slower growth, but in the long run there is still ample room for the market to grow and the size of the second-hand market will rise accordingly, he added. 

“China already has a very big second-hand auto market in terms of its nearly 14 million unit trading volume each year,” Li Jinyong said, adding that the domestic used auto market includes imported cars, vehicles from joint ventures and domestic brands.  

Unlike the US, Japan and some European countries, China’s second-hand car exports mainly target regions where the auto market is relatively weak. It is generally believed that BRI-participating countries will be the biggest potential market for China’s second-hand cars.  

“Africa, Southeast Asia and Russia are the target markets for China’s second-hand car exports,” Qin Zhiwei, chairman of Guangdong Good Car Holdings, one of the first companies licensed to export used cars. He said that in many countries alongside the BRI, car ownership remains relatively low and there is robust demand for high-quality second-hand vehicles.  

“Even though purchasing power in these regions is relatively weak, vehicle consumption is rising steadily. Second-hand cars priced within US$2,000 will prove popular in these countries.” According to statistics from the China Automotive Technology and Research Center (CATRC), the value of the automobile market in developing countries worldwide reached US$100 billion in 2018, and second-hand cars accounted for 60 to 80 percent of the market. Africa, Southeast Asia and Russia are the top three destinations in terms of auto demand, which combined have a market demand of US$55.1 billion. 

“With these three, Africa is an important strategic partner of China, Southeast Asia is China’s neighbor and Russia is our national strategic partner,” Qin Zhiwei said. “These are geopolitical advantages for China to export second-hand vehicles.” Qin added that members of the Association of Southeast Asian Nations (ASEAN) will be an important potential market. CATRC statistics also show that in ASEAN countries, vehicle ownership is 44 for every one thousand people, which is the fifth-biggest auto market and eighth-largest auto manufacturing region in the world. It is expected that by 2020, six million vehicles will be sold in ASEAN.  

Li Xiang, director of the Auto Dealers Chamber of Commerce under the All-China Federation of Industry and Commerce, said that after China gave the go-ahead for exports of second-hand vehicles, one million second-hand cars are expected to be exported with a total volume valued at six million yuan (US$868,000).  

“The second-hand car trade will in turn drive exports of auto parts and maintenance services which will continuously increase the total volume of trade,” he said. 

“It was inevitable that China would start exporting second-hand cars,” Luo Lei said. “Despite the favorable policy, there are still a number of risks and challenges in gaining a foothold in the used car market overseas.” 

Low Brand Recognition
Used-car dealers in China are naturally enthusiastic about the policy change, but the high costs to ship vehicles overseas means many are taking a wait-and-see attitude. Li Jinyong told our reporter that many enterprises had expressed interest, but few are capable of entering in the export business. 

“Only those enterprises which are familiar with the domestic second-hand auto market and are experienced in developing overseas markets, and have complete overseas sales chains will stand to benefit from the policy,” he said. 

In the international used auto market, the US, Japan and South Korea are the top three export countries – the US and Japan account for 90 percent of the market. 

 “In China, the prices of imported cars and cars from joint ventures are quite high, so domestic cars are likely to be the main products for auto sales abroad,” Qin Zhiwei said.  

But, Qin said, there is low recognition for Chinese brands internationally so dealers would have to invest heavily in marketing. “There needs to be brand recognition for new China-made cars in overseas markets before its used ones can be successfully sold,” he said.  

Generally speaking, used car dealers are mainly responsible for the after-sales service but the cost of establishing an overseas service system will prove a heavy burden for domestic enterprises. Luo Lei said domestic enterprises would have to cooperate with car dealers in countries willing to import used cars from China. 

In addition to these barriers, high logistics fees will hinder trade. Qin said that it costs around 5,000 yuan (US$720) to transport a second-hand vehicle to a country in Africa, but used cars priced under 20,000 yuan (US$2,890) are most popular. 

“It would require at least 100 million yuan (US$14.5m) to establish the entire chain of marketing, logistics and after-sales service,” he said.  

“What’s more, second-hand auto enterprises need assistance from the government in areas such as land use, taxes and customs.” 

China has more than 1,000 testing stations for second-hand vehicles, but there are still no uniform industry standards or centrally collected data about maintenance, insurance and repairs. MOFCOM said establishing a sound and reliable testing process for used cars before they are exported is an urgent requirement. 

“China needs to create internationally recognized testing institutions for second-hand vehicles and provide services tailored to different regions and markets,” Li Jinyong said, adding that it is not only a requirement for second-hand auto exports but also crucial to improve the domestic auto market. 

“This is just the beginning for used car exports, but its success to a large extent hinges on whether the strategy is backed up by the policies the sector needs,” he said.