Starting on Jan 7, qualified auto dealers registered in the zone could purchase cars directly from their foreign production base. The price of such automobiles is about 15 percent to 20 percent lower than if the purchase had been made through a brand's distribution network.

 

Analysts estimate the number of annual parallel-import cars will stay at about 10 percent of the overall number of imported automobiles sold in China each year.

 

Parallel importing will mainly cater to the special needs of a small group of consumers. Analysts say the move could weaken carmakers' control over prices although foreign luxury carmakers, including Daimler, BMW and Audi AG, have previously said the practice would have little impact on their businesses in China.

 

Opening up the niche market will better meet the demands of China's increasingly diversified auto market, and, to some extent, bring down the controversial exorbitant high prices of imported cars in China through competition.

 

In the 1990s, the UK effectively lowered the price of imported cars sold by authorized dealers at home through parallel imports.

 

Weak after-sales service has always been a headache for owners of these vehicles, which have actually existed in the underground markets in some coastal harbor cities in China.

 

According to the China Automobile Circular Association, among the 21.98 million autos sold in China in 2013, 1.07 million are imported finished cars. And among the imported cars, 83,000 were delivered directly from their production bases, bypassing authorized dealers.

 

In Shanghai's FTZ, the parallel-import market will be under regular legal and policy supervision.

To solve the after-sales service problem, Shanghai's FTZ administrative commission will implement a quality system for parallel-import automobiles that will feature the same quality warranty, recall and investigation policies as for vehicles sold by authorized dealers.

 

Requirements for auto dealers wishing to join the program include having been in the auto business for more than five years, making a profit consecutively for the recent three years and having annual sales of over 400 million CNY (67 million USD) in the last financial year.

They also must have automobile repair service, and a parts supply network and facilities matching the size of their operation, and they should have wholly-owned subsidiaries or holding companies, which are qualified to sell vehicles registered in the FTZ.

 

About 20 dealers are applying to take part in the parallel-import of cars, and the first parallel-import car will probably be available in Shanghai by the end of this month. Residents from the affluent Yangtze River Delta will be the main targeted consumers of these cars.

 

If the program proves successful in Shanghai's FTZ, it will probably be expanded to the FTZs in Tianjin, Fujiang and Guangdong for even larger experiments, and then to the whole country.

 

If so, sales of domestically made car brands could suffer. In the first 11 months of last year, the overall sales of such cars dropped by 17.34 percent year on year, and their market share decreased 5.3 percent year-on-year, according to the auto circular association.