Shanghai starts its "parallel import" pilot for foreign cars

Shanghai Free Trade Zone is to become the first place in China where dealers can be authorized for so-called "parallel imports" of cars direct from manufacturers.

The Shanghai Municipal Commission of Commerce and the Shanghai Free Trade Zone administrative committee have set strict restrictions on which dealers will be able to operate the new system.

Some 20 auto dealers registered in the zone will participate at first, operating alongside the zone's franchised dealers.

It is thought that the price of the parallel-import cars will be 15-20 percent lower than that of other dealers.

Analysts estimate such imports will account for about 10 percent of China's car imports.

The new move in Shanghai is expected to pull down the controversially high prices customers pay for imported cars in China.

"It is certainly good news for Chinese consumers," said industrial analyst Zhang Zhiyong.

According to a circular issued by the administrative committee, the auto dealers should have been in business for more than five years, made a profit for three years consecutively, and have sales of more than 400 million yuan ($64 million) in the last financial year.

They need to have automobile repair, service, and parts supply networks and facilities appropriate to their scale of operation.

The dealers must have sound reputations, reliable purchasing channels and experience in the auto sale and service industries. They must also have wholly-owned subsidiaries or holding companies, authorized to sell vehicles, registered in the FTZ.

It is estimated that parallel-import cars will mainly cater to the special needs of a small group of customers.

Opening up the niche market will not make a big difference to the auto market in China, analysts have said. But it will better meet the demands of China's increasingly diversified auto market.

It is expected the first parallel-import cars will be available in Shanghai by the end of this month. And if the pilot program proves successful, it will probably be expanded to FTZs in Tianjin, Fujian and Guangdong, and eventually to the whole country.

Poor after-sales service has always been a headache for owners of these vehicles, which have previously been imported through some coastal harbor cities in China.

The breakthrough in Shanghai FTZ, which was created one year ago to test out reforms, will put the parallel import market under proper supervision.

To solve the after-sales service problem, Shanghai FTZ administrative commission will implement a quality control system for the parallel-import vehicles. It will also impose the same warranty, recall and investigation policies as for vehicles sold by authorized dealers.

The commerce and business administrations have set strict requirements for dealers to better manage any potential risks.