More: see Gasgoo from today, carmakers want to eliminate parallel imports because they undermine the very high markups on cars in official dealership channels.
The arithmetic, which is pretty obvious from your article:
Domestic (Chinese) parties, such as a dealership, buy a car at wholesale (as they normally do), mark it "sold" and ship it to ... the Philippines or Peru, and sell it at a high enough price to (i) pay cash to their OEM supplier in China, (ii) pay for transport and tariffs (including any bribes* to result in no or low tariffs), and (iii) sell it in that market at a high enough price to earn more than if they sold it as a new car inside China. That's only possible because official imports carry a huge markup. Stolen cars are another source of parallel imports (see glennmercer.substack.com), but I doubt China is a significant source of stolen cars.
[* There's currently a bribery scandal unfolding in the Philippines, with construction company owners driving Rolls Royces that never passed through customs but somehow got a license plate as an ordinary vehicle, which mean not only zero tariffs but zero domestic luxury taxes.]
...sigh, I'd better stop commenting and focus on my own substack, I'm drafting one on economic methodology in the guise of a review of a book on Chinese high politics....
So cut demand to bolster domestic prices? – I don't think so. However, it could limit "grey" exports by dealers or other non-OEM players, so help the better-run OEMs build up their distribution networks. As per the article.
However ...
Licensing exports is not the same as limiting grey-market imports, because once vehicles are on a ship, ownership passes through many more hands before reaching the final (initial) owner, and once registered it's a used vehicle which opens up more and even less controlled distribution channels. Now the new rule(s) look like they may cover used vehicles, as the draft states "...enterprises applying for..." which could then be strictly applied. Now back in the bad old days the Chinese government was unable to restrict grey market imports, I met an entrepreneur / dealer (in Hong Kong) who sold 5,000 Nissans in one day, all grey market, to an entity on the Chinese side (Guangdong Prefecture, but maybe Guangzhou) with an unused hard currency allocation. That would have been at the tail end of the 1980s or early 1990s, I won't pull out books to pin down when that forex regime ended.
Nissan, or at least moderately senior people on Nissan's export side, had to know because of the number of vehicles, however Nissan has a long history of shady shenanigans. Pressure at Chinese OEMs for revenue today may overcome internal barriers to investing in distribution for the long term. So what the MIIT / Customs or whomever is told (and potentially what the top at the car company are [traceably] told may not be what happens on the water, or on the ground once cars are unloaded.
Interesting take on how auto export works. There's also a similar term in China called 0公里二手车(not used second-hand car), basically just unsold new cars. But Chinese customs have changed a lot since the 1990s, so I'm not sure whether it's comparable to the situation back then.
Yes, zero-mileage used cars were much in the news, though I haven't seen a story the past couple weeks. That practice is not unique to China: in the US, my daughter bought a "used" EV with 240 miles on it. I think (I will ask, but not post a follow-up) that dealers typically register "loaner" vehicles which they lend to customers who've brought a car in for service. Those end up as low-mileage used vehicles. Some dealers also maintain a small fleet of rental vehicles, which are also registered so will be used vehicles when sold, but I think the rise of insurance and other costs mean that's not very common.
Of course, the dealership has to write down the vehicle from the price they paid (inclusive of maker "hold backs" and other discounts to a dealership), but if they have vehicles that are unpopular (or one with colors not popular in the local market), then selling a vehicle to themselves may be useful. It also may put them over the threshold of vehicles sold that month, which qualifies them for an allocation of a scarce, popular vehicle that they can sell for a healthy profit. Well-run dealerships track "stale" inventory and have specific steps they take to try to get them off their lot. However, if they register vehicles, then they have to remove them from new inventory and (the key point) pay their bank for the vehicle, as typically dealerships finance everything on their lot. To be "out of trust" (have collateral that they've sold but not paid the bank for) is a huge no-no, a criminal offense that banks and franchisees take very seriously.
I've not visited dealerships in China, my spoken Chinese is too weak (while 笔谈 is too slow), but until recently many dealerships likely were sloppy about such details because it was easy to sell cars. Cf the US after the VER with Japan went into effect in May 1981, and people line up at a Honda or Toyota dealership when a car carrier arrived to unload new vehicles. You didn't need someone with sales skills, just someone to take orders, and at least in some parts of the country, once the subcompact boom faded, it took Honda and Toyota a long while to get dealerships to improve their ability to sell. There was likely some retrogression during COVID, when for a couple years a dealership might not have any new cars on the lot, and if they had any low-mileage used cars, those were priced at the sticker price of a new car. (I understand that new car dealerships in China don't focus on or sometimes even sell used cars.)
More: see Gasgoo from today, carmakers want to eliminate parallel imports because they undermine the very high markups on cars in official dealership channels.
The arithmetic, which is pretty obvious from your article:
Domestic (Chinese) parties, such as a dealership, buy a car at wholesale (as they normally do), mark it "sold" and ship it to ... the Philippines or Peru, and sell it at a high enough price to (i) pay cash to their OEM supplier in China, (ii) pay for transport and tariffs (including any bribes* to result in no or low tariffs), and (iii) sell it in that market at a high enough price to earn more than if they sold it as a new car inside China. That's only possible because official imports carry a huge markup. Stolen cars are another source of parallel imports (see glennmercer.substack.com), but I doubt China is a significant source of stolen cars.
[* There's currently a bribery scandal unfolding in the Philippines, with construction company owners driving Rolls Royces that never passed through customs but somehow got a license plate as an ordinary vehicle, which mean not only zero tariffs but zero domestic luxury taxes.]
...sigh, I'd better stop commenting and focus on my own substack, I'm drafting one on economic methodology in the guise of a review of a book on Chinese high politics....
So cut demand to bolster domestic prices? – I don't think so. However, it could limit "grey" exports by dealers or other non-OEM players, so help the better-run OEMs build up their distribution networks. As per the article.
However ...
Licensing exports is not the same as limiting grey-market imports, because once vehicles are on a ship, ownership passes through many more hands before reaching the final (initial) owner, and once registered it's a used vehicle which opens up more and even less controlled distribution channels. Now the new rule(s) look like they may cover used vehicles, as the draft states "...enterprises applying for..." which could then be strictly applied. Now back in the bad old days the Chinese government was unable to restrict grey market imports, I met an entrepreneur / dealer (in Hong Kong) who sold 5,000 Nissans in one day, all grey market, to an entity on the Chinese side (Guangdong Prefecture, but maybe Guangzhou) with an unused hard currency allocation. That would have been at the tail end of the 1980s or early 1990s, I won't pull out books to pin down when that forex regime ended.
Nissan, or at least moderately senior people on Nissan's export side, had to know because of the number of vehicles, however Nissan has a long history of shady shenanigans. Pressure at Chinese OEMs for revenue today may overcome internal barriers to investing in distribution for the long term. So what the MIIT / Customs or whomever is told (and potentially what the top at the car company are [traceably] told may not be what happens on the water, or on the ground once cars are unloaded.
Interesting take on how auto export works. There's also a similar term in China called 0公里二手车(not used second-hand car), basically just unsold new cars. But Chinese customs have changed a lot since the 1990s, so I'm not sure whether it's comparable to the situation back then.
Yes, zero-mileage used cars were much in the news, though I haven't seen a story the past couple weeks. That practice is not unique to China: in the US, my daughter bought a "used" EV with 240 miles on it. I think (I will ask, but not post a follow-up) that dealers typically register "loaner" vehicles which they lend to customers who've brought a car in for service. Those end up as low-mileage used vehicles. Some dealers also maintain a small fleet of rental vehicles, which are also registered so will be used vehicles when sold, but I think the rise of insurance and other costs mean that's not very common.
Of course, the dealership has to write down the vehicle from the price they paid (inclusive of maker "hold backs" and other discounts to a dealership), but if they have vehicles that are unpopular (or one with colors not popular in the local market), then selling a vehicle to themselves may be useful. It also may put them over the threshold of vehicles sold that month, which qualifies them for an allocation of a scarce, popular vehicle that they can sell for a healthy profit. Well-run dealerships track "stale" inventory and have specific steps they take to try to get them off their lot. However, if they register vehicles, then they have to remove them from new inventory and (the key point) pay their bank for the vehicle, as typically dealerships finance everything on their lot. To be "out of trust" (have collateral that they've sold but not paid the bank for) is a huge no-no, a criminal offense that banks and franchisees take very seriously.
I've not visited dealerships in China, my spoken Chinese is too weak (while 笔谈 is too slow), but until recently many dealerships likely were sloppy about such details because it was easy to sell cars. Cf the US after the VER with Japan went into effect in May 1981, and people line up at a Honda or Toyota dealership when a car carrier arrived to unload new vehicles. You didn't need someone with sales skills, just someone to take orders, and at least in some parts of the country, once the subcompact boom faded, it took Honda and Toyota a long while to get dealerships to improve their ability to sell. There was likely some retrogression during COVID, when for a couple years a dealership might not have any new cars on the lot, and if they had any low-mileage used cars, those were priced at the sticker price of a new car. (I understand that new car dealerships in China don't focus on or sometimes even sell used cars.)