New regulations on end-of-life vehicles

Good news for auto parts remanufacture in China

On April 22, 2019, the State Council has promulgated the Administrative Measures for Recycle of End-of-Life Motor Vehicles (“New ELV Measures”), which will become effective as of June 1, 2019 and supersede the current Administrative Measures for Recycle of End-of-Life Vehicles (the State Council, June 16, 2001) (“Old ELV Measures”).

Highlights

Permission of sales of “Five Assemblies”

Permission of sales of “Five Assemblies” by ELV operators to remanufacturers represents a major development in the New ELV Measures.

Under the Old ELV Measures, the “Five Assemblies” (i.e. engines, steering gears, transmission, front and rear axle assemble as well as frame) dismantled from the ELVs shall only be disposed as scrap metal and delivered to smelters. Such requirement (which originally aims at wiping out illegal vehicle-assembly activities) became a major deterrent to the growth of auto parts remanufacturing industry in China.

According to Article 12 and 13 of the New ELV Measures, the “Five Assemblies” dismantled from ELVs and qualified for remanufacture may be sold to capable remanufacturing enterprises. The ELV operators shall duly keep record of the dismantled “Five Assemblies” (including quantity, model and goods flow) and feed the information to an ELV recycling information database to be established and maintained by the Ministry of Commerce (“MOFCOM”).

The criteria of “qualified for remanufacture” and “capable remanufacturing enterprise” are not provided in the New ELV Measures. In terms of the remanufacturability of dismantled parts, relevant national standards (e.g. GB/T 32811) might serve as a reference. As to the qualification of remanufacturing enterprises, , it is not fully clear how the remanufacturing pilots and certification currently implemented by the Ministry of Industry and Information Technology (“MIIT”) and/or National Development and Reform Commission (“NDRC”) will be treated under the New ELV Measures.

Cancellation of quota restrictions

According to the Old ELV Measures, the number of ELV recycling enterprises allowed to be established/operated in a region (e.g. province or city) is subject to the quota set by local COFCOM. The quota restriction is lifted under the New ELV Measures.

Relaxed market entry threshold but strengthened supervision

Under the Old ELV Measures, an ELV recycling enterprise shall meet certain conditions, including but not limited:

• Registered capital ≥ RMB 500,000
• Annual dismantling and recycling capacity ≥ 500 vehicles
• Number of personnel ≥ 20

These requirements are removed under the New ELV Measures.

On the other hand, the New ELV Measures require ELV recycling enterprise to fulfill the requirements for storage, dismantling site, dismantling equipment and facilities as well as dismantling standards, esp. environmental protection requirements. There will also strengthened supervision on daily operation of ELV recycling, and the administrative penalties for incompliant operations will be more severe.

Outlook

The corresponding implementing rules and technical specifications are expected to be rolled out in near future.

With promulgation of the New ELV Measures, one of the road blocks for the development of automotive remanufacturing industry will be removed and one could expect that remanufacturing industry in China will get on a fast lane and become a potential investment hot spot.