The Illegal Modification Export of Branded Passenger Car from China

Recently, the overseas car import market has seen a surge in brand-new Chinese vehicles being offered at suspiciously low prices. While this might seem like a golden opportunity for buyers, it often hides a dangerous and illegal practice known as "modification export for passenger vehicles."

This article focuses on the risks of modification exports, specifically for gasoline-powered cars, which are subject to China’s 10% purchase tax. Notably, new energy vehicles (NEVs), such as electric cars, are exempt from this tax, making them less vulnerable to illegal export practices.

We’ll explore the dangers of modification exports, their impact on global buyers and legitimate exporters, and how you can protect your business from falling victim to these fraudulent schemes.

The Emergence of Suspiciously Low-Priced Vehicles in Overseas Markets

Recent reports have revealed a growing trend of brand-new Chinese gasoline-powered vehicles being sold at unusually low prices in global markets. For instance, a "brand new" China-made KIA KX1 might be listed at $8,500 USD (FOB), while legitimate exports of the same model usually cost 7-15% more. These significantly discounted prices are a major red flag, often pointing to illegal activities such as tax evasion and document fraud.

According to investigations, these low-price offers stem from illegal exporters using a method called "modification export." They rebrand vehicles from established manufacturers like Toyota, Honda, Kia, and etc, to modification factory names, bypassing China's compliant used-car export process. This allows them to evade the 10% domestic purchase tax and claim export tax refunds, creating low export prices. This illegal practice disrupts market order and poses significant risks to legitimate exporters and global buyers.

Why modification Export is Illegal

Modification export of branded passenger vehicleis a fraudulent practice where new gasoline-powered vehicles are disguised as "modification vehicles" using fake documents to evade taxes. Key illegal actions include:

- Fabricating vehicle records and trading documents (e.g., forged car ownership certificates, forged used car export license, forged car license, forged invoices, forged contracts, forged Certification of Orgin).

- Evading China’s 10% purchase tax and fraudulently claiming 13% VAT refunds.

- Using  "Modification Export Licenses," for the passenger vehicles, which are meant only for specialized vehicles.

Case Study: Ningbo Scandal

A notorious example is the Ningbo scandal, where authorities uncovered a syndicate exporting gasoline-powered KIA new cars under falsified titles and tax documents. The operation led to the seizure of over 200 vehicles, criminal charges, and significant reputational damage to China’s auto export industry. News Source From China Customs

In China, reporting illegal modification export activities is straightforward, and customs and tax authorities are cracking down on such practices. Overseas buyers should not risk attempting this method of import, as it could lead to significant losses.

Risks of modification Export to Global Buyers and Exporters

- Legal and Financial Exposure of Modification Car Export of Branded Vehicles

   i. Customs Seizures: In countries like Jordan in the Middle East and parts of North Africa, customs authorities have already uncovered modification export vehicles accompanied by blatantly falsified documents, leading to the seizure of these vehicles.

   ii. Document Fraud: Fake ownership papers, invoices, or export licenses can result in confiscation, fines, or even import company bans.

   iii. Losses: Buyers face the brunt of seized goods, legal fees, and supply chain disruptions.

- Damage to China’s Automotive Reputation

The surge in illegal vehicle exports is eroding trust among overseas buyers. If left unaddressed, this could lead to severe long-term consequences, such as bans on Chinese vehicle imports in critical markets.

- Policy Backlash:

Countries may tighten import rules for Chinese vehicles, even legitimate ones, in response to fraudulent activities.

How to Identify Illegal Exporters and Prevent Risks

1. Too-Good-to-Be-True Pricing:  In China's New Car market, the price of a New Car is very transparent. If the price of a "new" car is more than $500 cheaper than the market price, it’s a major red flag. Such unusually low prices often indicate illegal practices, so proceed with caution.

2. Tax Evasion Sales Tactics: Fraudulent exporters may offer "flexible documentation" options, such as providing both new and used car export documents for the same vehicle at different prices. This is a major red flag. It’s important to note that the only legal export method for vehicles from China is through used car exports. Even brand-new Chinese vehicles must first be registered domestically and then exported as used cars. Therefore, a compliant export process can only involve used car exports and the corresponding documentation. Always verify that the paperwork aligns with used car export regulations to avoid illegal practices.

3. Verify authenticity by checking exporter license screenshots with the 'mofcom.gov.cn' URL, the latest time, and the '通过 (Pass)' shown in the picture.

4. Demand a Used Car Export License (must include the name of the exporter and the word “旧”/used).

5. Car Brand and VIN Clarity: Ensure the contract explicitly states the specific brand, and type of the vehicle (e.g., Toyota, KIA) and includes the Vehicle Identification Number (VIN). Avoid contracts that list modification brands or omit brand details altogether.

6. Additionally, the payment: almost all legitimate used car exporters in China can accept payments directly. If an exporter asks you to pay to an account in Hong Kong (China) or another non-mainland China location, be extremely cautious. These accounts are not tied to mainland China’s used car export regulatory system and are likely associated with fraudulent activities or illegal modification exports, posing significant risks. Always ensure payments are made to verified Chinese mainland bank accounts to avoid falling victim to scams.

7. Buy cars from reputable exporters, who have no issues related to authenticity or legality. Ask for recent successful transaction cases or request introductions to past clients for direct communication. This can help verify their credibility and ensure a smoother transaction process.

Summary

The suspiciously low prices of Chinese vehicles in overseas markets often hide the risks of illegal "modification exports." This practice, involving document forgery, tax evasion, and misuse of export licenses, severely disrupts market order. Global buyers face risks such as vehicle seizures, financial losses, and legal disputes, while China's automotive export reputation suffers.

To protect against these risks, buyers should:

- Be cautious of prices significantly below market rates (e.g., $500 or more lower).

- Ensure contracts specify the vehicle brand (e.g., Toyota) and VIN, avoiding modification brands or missing details.

- Verify the authenticity of used car export licenses (must include the word “旧”/used).

- Make payments only to verified mainland China accounts, avoiding transfers to Hong Kong or other regions.

- Source from reputable exporters and request recent transaction cases or client references.

By choosing legal and compliant channels, buyers can protect their interests and build long-term trust in the global market. This not only safeguards against risks but also promotes transparency and sustainable development in international trade. Partnering with responsible exporters is key to fostering a healthy market environment and achieving mutual success.