Tariff War and Intensified Involution: China's Zero-Kilometre Used Cars Spark Debate

Another Chinese electric vehicle (EV) manufacturer appears to be in financial trouble as Nezha Motors discreetly closes its stores nationwide. Pictured: A Chinese-made electric vehicle. (Video screenshot)

[People News] The problems of involution and overcapacity in China's automotive industry are increasingly severe. The 'zero-kilometre used car' product effectively promotes new cars with subsidies at discounted prices, which has faced criticism from industry insiders and has drawn the attention of officials who may consider regulatory intervention. The rise of zero-kilometre used cars either underscores the deep-rooted economic issues in China or exemplifies the effects of the ongoing tariff war.

As reported by Radio Free Asia, the intense competition within China's automotive sector has raised concerns among both industry professionals and government officials. Wei Jianjun, chairman of Great Wall Motors, highlighted the issue of new cars being registered and then sold as used cars, labelling this practice as a bizarre phenomenon in the automotive industry. According to Reuters, the Ministry of Commerce has held closed-door meetings with several car manufacturers and relevant industry organizations to address the zero-kilometre used car issue.

The topic of zero-kilometre used cars has also captured the interest of netizens, becoming a trending discussion online. A blogger involved in the automotive industry noted that new car owners who have purchased vehicles in recent years are likely familiar with the concept of zero-kilometre used cars. They pointed out that this so-called used car is simply a different term for resource cars and tax-inclusive cars, essentially selling new cars as used cars, which helps both manufacturers and dealers manage their inventory.

Blogger "懂車兄阿森" (Dǒngchē xiōng Āsēn) commented: "From the manufacturer's standpoint, the rise of zero-kilometre used cars is primarily due to significant inventory pressure, with an oversupply of vehicles that aren't selling. These cars are bundled and sold specifically to car dealers. Dealers, having failed to meet their monthly, quarterly, and annual sales targets, need to quickly boost their sales. This situation arises either because manufacturers and dealers are on the brink of bankruptcy or because they want to rapidly recover funds by selling cars at discounted prices."

Another blogger who specialises in zero-kilometre used cars voiced concerns, arguing that these vehicles are priced at 60% or even half of the new car price, offering more choices for young buyers and helping manufacturers address their inventory challenges. They disagree with the characterisation of zero-kilometre used cars as a bizarre or chaotic phenomenon.

Blogger "車行劉老闆" (Chēháng Liú lǎobǎn) stated: "With manufacturers facing overproduction, who are all these cars supposed to be sold to? They can't just be left unsold or discarded, which is why we are here. An individual can only purchase three cars, but as a company, we can bundle together hundreds or even thousands of cars at once. I handle the license plates, taxes, and full payment for mandatory insurance, allowing customers to enjoy all the warranties from 4S dealerships. The cars are produced on the same assembly line, saving money for the public without any scams involved. Whether zero-kilometre used cars represent a chaotic situation is up for everyone to judge."

Analysis: Zero-kilometre used cars are a method of fraudulently obtaining subsidies; where there is profit, there will always be those willing to take risks.

Current affairs commentator 方原 (Fāng Yuán) noted that the existence of zero-kilometre used cars highlights not only the weak consumer capacity and severe internal competition in the Chinese market but also longstanding issues within government industrial policies. When the state allocates substantial subsidies to support specific industries, corruption issues are inevitably bound to arise.

Fang Yuan stated, "China's government-led industrial policy has resulted in industries such as automobiles and the new three types experiencing overcapacity due to substantial subsidies, leading to a significant imbalance on the supply side. The rise of zero-kilometre used cars is a blatant attempt to deceive the government into providing subsidies by misrepresenting new cars as old ones, falsely claiming that these cars have already been sold, and then seeking subsidies from the government through fraudulent means."

Fang Yuan emphasised that as long as there are profits to be made, there will always be individuals willing to take risks. He believes that even if the Ministry of Commerce intervenes and mandates regulations and reforms for car companies, it will be challenging to eradicate the issue of zero-kilometre used cars.

Wang Guochen, a full-time assistant researcher at the First Research Institute of the Chung-Hua Institution for Economic Research, pointed out that zero-kilometer used cars reflect the problems stemming from excessive investment in manufacturing due to China's top-level design. He warned that if the issue of overcapacity continues to be ignored, it will only exacerbate the challenges facing China's economy.

Wang Guochen remarked, "These factories or enterprises should ideally close if their products are not selling. However, we do not see closures because banks have extended numerous loans to support them. This issue ultimately returns to the banks, as they are unable to recover the funds they have lent. Consequently, this problem gradually extends to the first concern, which is the banks, and there is growing attention on the risks associated with Chinese banks. The second concern is the government's extensive investments to support businesses or provide subsidies, which have not yielded the expected benefits, leading to a continuous expansion of government debt."

Chen Songxing, a part-time professor at the National Development and Mainland Development Research Institute of Cultural University, stated that China's economy is currently grappling with deflation and a liquidity trap. As the economic situation worsens, consumer behaviour becomes increasingly conservative, making it more challenging to stimulate domestic demand and consumption. He pointed out that the tariffs imposed by the United States on China represent a broad-based suppression. While the impact on the automotive sector may not be substantial, if the tariff war resumes, the automotive industry, which is already struggling with overcapacity, will undoubtedly face even more severe challenges. He further noted that given the effects of the real estate market, overcapacity, and the tariff war, he believes that China's economy will not see improvement in the third quarter.