Chinese auto manufacturers employed a deceptive strategy, tricking their foreign trading associates with manipulated vehicle specifications.
Unveiling China's Smooth Operator Tactic:
Chinese automobile manufacturers, in a cunning move, have discovered a nifty way to dispose of their surplus production. As reported by news agency "Reuters", these manufacturers are shipping new cars, under the guise of used vehicles, to foreign nations at cutthroat prices.
The investigation by "Reuters", based on official documents and expert opinions, reveals that this covert practice helped these manufacturers to continue their expansion despite a congested domestic market.
According to an advisor to the Chinese Automobile Dealers Association, about 90% of the 436,000 passenger and commercial vehicles exported last year were "zero-mileage" vehicles. The prime targets for these exports were Russia, the Middle East, and Central Asia, with a special focus on internal combustion engines, as these are less popular in China. Electric vehicles are also being transported.
A Clever Ploy to Achieve Ambitious Growth Targets
The Chinese government, it seems, has aided this stealthy strategy. Documents suggest that the government has granted export licenses, expedited tax exemptions, or financed necessary infrastructure to help the government attain its ambitious growth targets. However, Chinese officials failed to respond to a request for comment regarding this practice.
The European Union has already imposed taxes on Chinese electric vehicles to counteract price competition. Russia has issued a ban on "zero-mileage" vehicles from 2023. Other countries, like Jordan, are reconsidering their definition of used vehicles to thwart this technique.
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Insights on the Zero-Mileage Scheme:
The clandestine practice of labeling new vehicles as used, commonly known as the "zero-mileage" scheme, has garnered controversy due to its ramifications, regulatory challenges, and responses, especially in major markets such as Russia, the Middle East, and Central Asia.
The Genesis of the Scheme:
The zero-mileage scheme has been in practice since around 2019, with Chinese authorities in regions like Guangdong, Sichuan, Shenzhen, and Guangzhou promoting this scheme to inflate vehicle sales figures and regional GDP. This tactic involves registering brand-new vehicles as second-hand before exporting, thus creating the illusion of a used car export market while actually transporting new vehicles overseas. This dual transaction (a new car sale and a separate used car export) artificially inflates local economy statistics and assists authorities in meeting performance standards set by Beijing. In 2024 alone, China exported around 436,000 such zero-mileage "used" vehicles, a considerable portion of its total used vehicle exports.
Consequences:
- Market Disruption: The influx of new vehicles camouflaged as used cars has destabilized local car markets in importing regions, undermining genuine used car merchants and complicating market pricing structures.
- Trade Transparency: This clandestine practice has sparked concerns about trade transparency and the trustworthiness of trade statistics, creating hurdles between Chinese exporters and overseas importers.
- Economic Inflation: It artificially inflates China's auto sales statistics and GDP numbers by counting each vehicle twice—as a new sale domestically and a used export abroad.
Regulatory Framework:
China’s local governments have facilitated this strategy through tax incentives, special export licenses, and infrastructure support geared towards zero-mileage used car exports. For example:- Shenzhen aims to export 400,000 zero-mileage used vehicles in 2024.- Guangzhou created specific vehicle registration quotas to enable zero-mileage gasoline car exports despite environmental regulations.- Sichuan collaborated with e-commerce platforms to market these vehicles online.
On the importing side, countries like Russia, Middle Eastern nations, and Central Asian states have become significant recipients of these exports. However, these countries face challenges in regulating and verifying the actual condition of these vehicles. This has triggered calls for stricter import controls and more vigilant vehicle inspections to ensure compliance with local standards and safeguard consumers.
Reactions in Key Markets:
- Russia: Russian regulators are beginning to evaluate the surge in zero-mileage used car imports, worried about potential fraud and regulatory evasion. There is increasing scrutiny to distinguish genuinely used vehicles from new ones disguised as used to protect domestic industries and consumer interests.
- Middle East: Some Middle Eastern markets have expressed concerns regarding these imports owing to worries about warranty, after-sales service, and vehicle condition authenticity. Discussions on tightening import documentation and vehicle verification are underway.
- Central Asia: Central Asian countries, often with weaker automotive regulatory frameworks, struggle to manage this trend. There is a growing demand for stricter customs and vehicle inspection procedures to mitigate economic and consumer risks.
Official and Industry reaction:
The Chinese automotive industry and government officials have defended the practice as a legitimate method of export growth, stressing its role in bolstering regional economies and meeting Beijing's economic targets. However, the growing backlash and market disturbances have incited demands for reform.
The zero-mileage scheme, a practice that labels new vehicles as used, has become a contentious issue due to its impact on market stability and regulatory challenges, particularly in major markets like Russia, the Middle East, and Central Asia. This scheme, which involves registering brand-new vehicles as second-hand before exporting, has contributed to the influx of new cars in local car markets, adversely affecting legitimate used car merchants and disrupting market pricing structures.
The Chinese government has facilitated this strategy through tax incentives, special export licenses, and infrastructure support, aimed at promoting zero-mileage used car exports. On the other hand, countries like Russia, Middle Eastern nations, and Central Asian states, the prime targets for these exports, face difficulties in regulating and verifying the actual condition of these vehicles, leading to calls for stricter import controls and vigilant vehicle inspections to maintain local standards and protect consumers.
