China’s Ministry of Commerce (MOFCOM), Ministry of State Security (MSS), and State Taxation Administration (STA) have jointly published a notice, outlining plans to ease secondhand vehicle trading regulations in the country, as reported by Caixin on April 19. The new rules will start trial operations in 20 cities, including Shanghai, Tianjin, Taiyuan, and others from June 1, 2021, and will be expanded nationwide by 2022.
Specifically, the notice allows for the transaction to happen at where the buyer is located, as an improvement to the previous rules which only permits secondhand car trading at where it is originally purchased and registered. Also, it intends to accelerate the digitalization of used car transactions, in order to improve and simplify the vehicle examination and inspection procedures for secondhand car trading. In addition, the notice clarifies the duties of buyers, sellers, and car dealers in used car sales, requiring car dealers to submit detailed trading information to a national-level platform on a timely basis.
The move marks the country’s latest attempt to stimulate domestic consumption of used vehicles. The Chinese government has green-lit the export of used vehicles since April 2019, and currently sells secondhand cars to over 80 countries and regions. The country aims to export 500,000 used vehicles by 2025. Meanwhile, the central government has reduced the value-added tax for secondhand vehicles to 0.5% since May 1, 2020, down from the previous 2% and much lower than the 17% for new vehicles. This March, MOFCOM once again reiterated the importance to completely lift local protectionist policies that restrict the cross-provincial circulation of used vehicles, to further free up the domestic used car market.
According to data from China Automobile Dealers Association, China sold 14.34m used cars in 2020, down 3.90% YoY, with a total transaction volume of RMB888.83bn, dropping 5% YoY, mainly due to the COVID-19 pandemic. Notably, the used-to-new vehicle sales ratio came to only around 57%, far less than above 200% for developed countries such as the US, showing ample room for development. Based on calculations from China News, the country should be able to sell approximately 40m secondhand vehicles on an annual basis. As Bloomberg estimates, China’s used car market size will double to around RMB2tr by 2025 under the current preferential policies.