Chinese used car market to undergo major changes as China lifts restrictions on relocation of used cars

The General Office of the Ministry of Commerce of China released the “Guidelines for Promoting Auto Consumption in the Commercial Sector” (hereinafter referred to as “Guidelines”) on February 9 to promote auto consumption in China. Among them, the comprehensive abolition of the used car relocation policy and the promotion of used car consumption has attracted much attention. The industry believes that the “landing” of this policy will not only improve the circulation activity and transaction price of China’s used car market, but also further stimulate the total transaction volume of the entire Chinese automobile industry and the development of the upstream and downstream of the automobile industry.

Fully abolishing the used car relocation policy, refining the “cross-province” supporting initiatives

According to the guidelines, the policy of limiting the relocation of used cars will be completely canceled. Except for key areas of air pollution prevention and control, used cars that meet the emission standards for in-use vehicles shall not be restricted to move in. China will implement the requirements of relevant state documents and further facilitate the relocation of used cars to other places. For the regions that plan to resume the restriction policy on the relocation of used automobiles, the local competent commercial departments shall put forward opinions and suggestions to the policy-making departments, and report to the local people’s governments and the Ministry of Commerce in time.

In line with this, the Guidelines also proposed to further optimize and innovate the used car trading and circulation mode. In terms of transactions, detailed supporting measures of the “Cross-provincial Procedure” were taken to ensure the issuance of invoices and the handling of transfer registration procedures for the off-site transactions of small non-operating used cars at the place where they were transferred. In terms of circulation, China will support the transformation and upgrading of the used car trading market, improve the hardware and software facilities, establish the first compensation system, enhance the application level of information technology, and promote standardized and large-scale development.

The so-called restricted relocation policy of used cars refers to the requirements of certain provinces and cities for used cars in other provinces or cities, requiring the designation of environmental protection standards and limitation of years to avoid excessive relocation of used cars from other places. Industry insiders believe that first-tier cities are not able to digest used cars and need to migrate to second- and third-tier cities. The restrictions on relocation have led to the cooling of the used car market in the third-tier, fourth-tier, and fifth-tier cities in the first-tier city market, lower transaction prices, and restricted circulation.

Used car transactions account for 20% of China’s auto market, which is expected to nearly double in 2025

Used cars are an important part of China’s automobile circulation system. According to data released by the China Automobile Dealers Association, the total volume of used car sales in the country in 2020 reached 14.3414 million, down 3.90 percent year on year.

The industry believes that the current used car market in China is still in its infancy, there is a lot of consumption space. Foreign new car and used car transactions accounted for 20% and 80% respectively, and the frequency of used car turnover is high. The proportion of first-hand car and used car transaction volumes in China is just the opposite, 80% and 20% respectively.

In fact, in recent years, China has actively promoted the abolition of restrictions on the removal of used cars. “The complete cancellation of the used car restriction policy will not only increase the circulation activity and transaction price of China’s used car market, but will also further promote the upstream and downstream development of the entire automotive industry,” said Gao Jiu, chairman of Jekun Auto. For first-tier cities, the volume of used car transactions will increase, while driving new car transactions. Accordingly, the number of vehicles in the third – and fourth-tier Chinese cities will increase, driving the total transaction volume of the entire automobile industry, which will drive the development of upstream manufacturing, vehicle insurance, subsequent automobile services, and other related industrial chains.

CICC expects that benefiting from the complete cancellation of the relocation restriction policy and the introduction of the tax reform policy, the circulation of used cars across China is expected to be further improved, resources will be more rationally allocated, and more profit margins are expected to open up. The market space is expected to be nearly doubled in 2025.

The automobile consumer market is further active, accelerating the replacement of automobiles

Guangdong Province is the largest used car trading province in China. Guangdong officially implemented the National Sixth Standard in July 2019. For light-duty vehicles in use that have moved into the Pearl River Delta region to be listed on the market, they should meet the National Sixth Emission Standard; before June 30, 2023, light-duty vehicles using the National fifth emission standards in the Pearl River Delta region can migrate to each other.

Industry insiders believe that Guangzhou is an important export city for used cars. The complete abolition of the policy of restricted relocation of used cars is a major benefit to the Guangzhou used car market, which is conducive to further invigorating the local car consumer market in Guangzhou, and will also accelerate the replacement of cars in Guangzhou.

Guangzhou issued a policy in April last year, giving a 3,000 yuan subsidy to automobile sales enterprises that replace used cars and register in Guangzhou to buy new cars, among which, a 6,000 yuan subsidy will be given to those who buy low fuel consumption gasoline cars and non-plug-in hybrid electric vehicles. Those who scrap old gasoline vehicles more than one year in advance and buy new ones will be given a subsidy of up to 23,000 yuan.


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