Archived
TLDR:
- Production and sales targets for EV makers come down from the Chinese government, dictating to its state-controlled industries what targets producers need to hit.
- Those that meet the sales targets are incentivized, those who fail to meet targets are often punished by the state.
- This has led to auto dealers, exporters, and other outside companies buying Chinese domestic vehicles right off the assembly line as new, and then immediately shipping them abroad where they're sold at lower prices as "fake" used models.
- Some Chinese representatives openly praise the practice and don't shy away from the details at public events. This certainly suggests the government is well aware that it's over-producing new vehicles, deflating prices, diminishing demand, and hurting global competition, all for the sake of boosting numbers to keep politicians happy.
- The proliferation of new cars being shipped for sale with "used" tags is reinforcing fears that China is dumping subsidized vehicles overseas, at a time when Beijing is scrambling to find export markets outside the United States, now heavily protected by tariffs.
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China's auto industry has inflated car sales for years through a burgeoning government-backed grey market that registers new cars right off the assembly line and then ships them overseas as "used" vehicles.
These so-called "zero-mileage" cars have never been driven but they are being exported as used to markets like Russia, Central Asia and the Middle East, allowing Chinese automakers to show growth and to dispose of cars that it would be difficult to sell domestically.
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The practice only gained national attention after the boss of Chinese automaker Great Wall Motor criticized the sale of zero-mileage used cars within China in May. On June 10 the People's Daily newspaper condemned the sale of zero-mileage used cars domestically.
The paper, which often signals the positions of China's top Communist Party leaders, blamed these fake used cars for driving down prices amid a withering domestic price war and called for "tough regulatory action" to restore order.
But the export and sale of fake used cars is actively encouraged by regional governments in China, according to a Reuters review of state media reports and government documents.
Local governments have embraced the practice as vital to meeting ambitious targets for economic growth set by Beijing, according to a Reuters review of local policy documents and state media articles.
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The zero-mileage used car export market works like this: as a fresh car emerges from the assembly line, an exporter buys the car either directly from the automaker or from a dealer, registers it with a Chinese license plate, and then immediately marks it as a second-hand car for shipping abroad. Along the way, the automaker books the car as sold and logs the revenue.
The support for the practice from local governments would make little sense anywhere outside China's centrally planned economy. But here, showing rapid growth in sales and employment can bring about promotion or unlock new funding while missing economic targets that trickle down from Beijing can lead to demotions of local officials.
Because these export firms both purchase and sell a single car, the transaction value is double that of new or used-car purchases, so local governments court them to set up shop on their turf to quickly and artificially boost their GDP statistics, two Chinese auto industry executives said.
The tactic is only one sign that China's car industry – the world's largest – is allowing production to outpace demand, driving a protracted domestic price war and spurring accusations of automotive "dumping" abroad.
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Local government support has taken various forms, from simplifying paperwork, to allocating extra quotas for local vehicle registrations, to setting up free warehouses for zero-mileage used cars close to China's land and maritime borders, the Chinese documents showed.
In February 2024, the planning commission of the southern city of Shenzhen, one of China's richest cities and a tech hub that is home to Huawei and Tencent, pledged to expand the export of zero-mileage used cars as part of efforts to reach an annual target to export 400,000 vehicles of all kinds.
Nearby, the southern Chinese metropolis Guangzhou announced earlier this year it had created a mechanism to support and accelerate the export of zero-mileage gasoline vehicles by allocating extra quotas for local registrations that are otherwise capped to mitigate traffic congestion and air pollution in the city.
Xinmi, a district of Zhengzhou, the provincial capital of China's third-most populous province of Henan, said in February that it helped local firm Xinjiasheng Supply Chain Management Co., Ltd to "promote zero-mileage used car exports, in order to use exports to drive domestic sales."
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The practice began sometime after 2019 when China allowed used cars to be exported to other countries. Now thousands of traders are involved in passing off new cars as used to qualify for the channel, according to Wang Meng, a consultant for the China Automobile Dealers Association.
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The proliferation of new cars being shipped for sale with "used" tags is reinforcing fears that China is dumping subsidized vehicles overseas, at a time when Beijing is scrambling to find export markets outside the United States, now heavily protected by tariffs.
Some countries, concerned that the influx of cars will crowd out local dealers and confuse consumers, are starting to push back.
"We're definitely seeing friction and tension in markets where there are already manufacturers on the ground there," said Michael Dunne, a consultant who closely follows the China auto industry.
Russia in 2023 issued a government decree effectively banning zero-mileage used cars from brands that already had official distributors in the country. The commerce bureau of Heihe, a Chinese city that sits on the China-Russia border, said last November on its website that this applied to Chinese brands such as Chery, Changan, and Geely.
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