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China Wants to Build a $306 Billion Used-Car Market From Scratch

Although China has more than 270 million vehicles on its roads, only an estimated 15 million secondhand models were sold in 2019. That’s in sharp contrast to places such as Australia, the U.K., and the U.S., where people buy more used cars than new ones. So policymakers, intent on stimulating domestic consumption, want to change that. China is aiming to double the size of its secondhand-car market to about 2 trillion yuan ($306 billion) by 2025. To get there, Beijing has slashed taxes on used-car dealers, in May reducing the levy to 0.5% from 3%—far less than the 17% tax on new vehicles. It’s also making it easier for dealers to trade used cars among themselves by classifying a secondhand vehicle without a license plate as a commodity rather than a personal asset, which simplifies the transaction. “The used-car-trading business is about to enter a brand-new chapter,” says Xiao Zhengsan, secretary general of the China Automobile Dealers Association (CADA). “We will see more positive policies in this area.”

The reasons China doesn’t have a sizable used-car market are twofold. First, China’s overall car market is relatively young—the first foreign joint venture, between Volkswagen AG and SAIC Motor Corp., wasn’t established until 1984, and growth in auto sales to individuals took off only in the early 2000s. Even now, car ownership lags other developing nations. About 173 of every 1,000 people in China have a car, vs. 433 in Malaysia and 373 in Russia. In the U.S. and Australia, McKinsey & Co. data show, it’s 837 and 747, respectively. Many people in China are still on their first car.

The second reason is largely cultural. In China, buying a first car or first home was typically a big deal, a declaration of social status and a symbol that not only the person but also the whole family had arrived. In recent years that mindset has shifted. Younger consumers are becoming more sophisticated and less likely to embrace the concept of saving face by having nice possessions. Parents would rather get an older apartment near a good school than a brand-new one farther out. Similarly, forking over extra money for a new car when a perfectly good secondhand one is available is considered to make more economic sense.

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