Shanghai FTZ to roll out pilot program for auto ‘parallel imports’

The China (Shanghai) Pilot Free Trade Zone (FTZ) is set to roll out a pilot scheme for "parallel car imports," which is expected to greatly bring down the prices of premium cars sold in the Chinese mainland, according to experts.

The State Council, China's cabinet, said in a document on November 6 that efforts should be made to speed up the pilot program of "parallel imports" in the Shanghai FTZ, indicating that the government has begun to bring changes to the country's vehicle import system.

"Parallel imports" refer to the practice of car dealers importing genuine vehicles from foreign markets to China without the permission of the manufacturer or the authorized distributor. Prices of cars imported this way are usually 10 percent to 20 percent lower than the cars imported via regular channels, as the import process is simplified, analysts said.

Though cars imported via such "parallel" channels are genuine and not necessarily illegal, they are not entitled to after-sales services from auto brands' authorized dealers - a key factor that hinders the development of such imports, said Jia Xinguang, chief analyst with China Automotive Industry Consulting & Development Co.

"If the pilot program is launched, prices of premium cars will be greatly reduced," Jia told the Global Times.

Zeng Zhiling, general manager of LMC Automotive Consulting in Shanghai, noted that cars priced over 800,000 yuan ($130,601) will see a more obvious price drop. Also, if the pilot scheme is launched, cars imported through such "parallel" channels are also expected to enjoy legitimate after-sales services, he said.

Currently cars imported via such "parallel" channels only account for some 7 percent of the country's overall vehicle imports, which totaled 1.04 million units of passenger cars in 2013. But with the pilot scheme in sight, that figure may reach some 15 percent in the future, according to Zeng.

Media reported that a plan for the pilot scheme has been approved by the Ministry of Commerce.

The Shanghai Waigaoqiao Automobile Exchange Market Co, a major market for imported cars and a testing ground for the Shanghai FTZ, was not available for comment.

Carmakers currently have a very strong say in the pricing of imported whole cars as well as auto parts, as their authorized distributors are the dominant channel for importing cars. But if the pilot program is to be expanded to other places in China, their controlling power in pricing will be greatly reduced, Zeng said.

Though the pilot program has not been officially announced, e-commerce giant Alibaba started to sell imported cars from "parallel" channels on its online marketplace ju.taobao.com during the shopping carnival on November 11, or "Singles' Day."

Analysts said that the pilot program will have a greater impact on automakers that rely more on sales of imported cars, such as Lexus. The three German giants - Audi, BMW, and Mercedes-Benz, however, will see limited impact as most of their sales now come from locally produced cars.

Chinese authorities have launched an antitrust investigation into major automakers for monopolistic pricing practices during the past few months. Major automakers such as BMW, Jaguar Land Rover and Audi announced that they would cut auto parts or whole car prices in July and August.