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‘Parallel’ car imports open new avenues
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THE Shanghai Free Trade Zone in its first two years has transformed the term “parallel imports” from automotive jargon into household lingo.
Beginning in January, a trial program allows dealers registered in the zone to import cars directly from overseas without authorization from car manufacturers. The new policy legitimizes what has long been a gray area. Seventeen dealers are participating in the project.
Still, the deregulation faces teething problems in certification and import tax policy.
Parallel imports suddenly became a buzzword in China’s anti-monopoly campaign after regulators found several premium foreign carmakers guilty of thwarting market competition by setting minimum car prices for dealerships.
Cars brought in under the parallel import program could sell for up to 20 percent below manufacturers’ recommended retail prices.
“The volume is tiny tiny,” Jian Danian, deputy director of the Free Trade Zone Administration, said of parallel imports.
The certification process remains a big obstacle to increasing that volume.
The China Compulsory Certification, known as 3C, is a safety mark for imported goods. It is still a hard-to-get legitimate identity for parallel imports in China because, technically, only car manufacturers can apply for the certification. And the manufacturers’ attitude toward parallel imports has been ambiguous.
“They want parallel imports to help create a buzz for their new products yet to be officially imported, and at the same time, they want to fend off any real impact on official sales,” said Mike Zhang, chief operation officer of 99maiche.com, which handled the first three parallel import cases for the Free Trade Zone.
This newly established parallel import-specific e-commerce platform uses an old ploy to get around the regulatory pitfall. It seeks to import cars in the name of aftermarket tuning factories to qualify as manufacturers under what is known as “minor 3C.” The whole certification process, including crash tests and disassemblies, can be costly and time-consuming, not to mention the fact that Shanghai has always been rather strict toward aftermarket modified vehicle imports.
Shanghai lags far behind its northern rival Tianjin in the quasi-parallel import market, despite the equal footing of both cities in combined import car volumes. The Tianjin port is known for a bold approach in handling gray-area vehicle imports. A car that may take a month to get clearance in Shanghai can pass customs there within a week.
There is a reason to be cautious about parallel imports because cars brought in directly from overseas don’t necessarily comply with Chinese standards.
There can be up to 1,000 differences between a car model’s qualified Chinese version and its American version, which only certified modification workshops can be entrusted to deal with.
Jian said the biggest problem of parallel imports is gaining approval from the central certification and accreditation administration for minor 3Cs to become an officially recognized practice.
The Free Trade Zone administration is still trying to coordinate authorized vehicle modification within the area, which may be a turning point for parallel import certification.
Another unfulfilled expectation related to parallel imports is the fine-tuning of import tax collection from the central government, industry watchers said.
To protect the competitiveness of locally produced cars, imported cars since 2005 cannot be stored in tax-bonded areas to receive exemption from import duties. Parallel import companies are calling on the government to abolish that restriction to help them cut operating costs.
Parallel imports is a cash-intensive business. Only cars with sticker prices higher than 300,000 yuan (US$46,875) have price differentials worth exploiting. Dealers at the downstream of the industry value chain have to make advance payments to order from overseas counterparts.
And yet, there is never a shortage of player looking at opportunities to leverage their positions. Last year, quasi-parallel imports accounted for less than 10 percent of China’s vehicle imports, a proportion that may eventually double, given the experience of more mature car markets like Japan.
Driving the anticipated growth will be a transition from stealing business from manufacturers’ franchised dealerships to filling gaps in the marketplace.
“Parallel imports are meant to meet individualized needs that are overlooked by traditional car imports and sell cars with different combinations of specs or with something rare,” Zhang said. “Consumers of parallel imports will come to realize that they aren’t limited to options offered by franchised dealers, who often pursue their own agendas in clearing inventories.”
Parallel imports won’t disappear. They are part of an emerging on-demand economy that the policies of the Shanghai Free Trade Zone have catapulted to public consciousness.
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