China’s Auto Industry Uses Fake Sales Numbers to Inflate Vehicle Sales – The Institute for Energy Research

Report on Chinese Automotive Industry Sales Practices and Sustainable Development Implications

An investigation into the Chinese automotive sector reveals systemic practices of inflating vehicle sales figures through the immediate reclassification and export of new vehicles as “used.” This report analyzes the mechanism, its economic consequences, and its significant misalignment with several United Nations Sustainable Development Goals (SDGs).

Mechanism of Sales Data Inflation

Chinese automakers have been registering newly manufactured vehicles domestically before exporting them with minimal to zero mileage. This process allows for the recording of two separate transactions:

1. A domestic “new car sale.”
2. A “used car export.”

This practice, reportedly in place since 2019, artificially inflates national sales volumes and contributes to a distorted Gross Domestic Product (GDP). The primary destinations for these “zero-mileage” used cars include Russia, Central Asia, and the Middle East. While initially a response to a domestic price war, the strategy has evolved into a method for meeting ambitious economic targets set by the government and for dealerships to secure sales bonuses.

Conflict with Sustainable Development Goals (SDGs)

The described practices directly contravene the principles of several key SDGs, undermining progress toward a sustainable global economy.

SDG 8: Decent Work and Economic Growth

The inflation of sales and GDP figures represents unsustainable and illusory economic growth, not the stable, inclusive growth envisioned by SDG 8.

• Distorted Economic Indicators: By double-counting transactions, the practice creates a misleading picture of economic health, potentially leading to flawed policy decisions and resource misallocation.
• Threats to Decent Work: The influx of artificially cheap Chinese vehicles into markets like Brazil is perceived as a threat to the local automotive industry, potentially leading to job losses and undermining domestic production, which is contrary to the goal of creating decent work for all.

SDG 12: Responsible Consumption and Production

The strategy is a clear violation of the principles of responsible production and consumption patterns.

• Systemic Overproduction: Automakers are incentivized to produce vehicles to meet quotas rather than market demand, leading to massive oversupply. BYD’s dealer inventory of 3.21 months, compared to an industry average of 1.38 months, exemplifies this unsustainable production.
• Market Dumping: Exporting surplus vehicles, particularly less desirable internal combustion engine (ICE) models, as “used” constitutes a form of market dumping that disrupts foreign markets and shifts the burden of overproduction abroad.
• Resource Inefficiency: This model encourages wasteful resource use and distorts market signals that would otherwise guide efficient and sustainable investment.

SDG 9: Industry, Innovation, and Infrastructure

While the practice involves investment in export infrastructure, it undermines the goal of building resilient, sustainable, and innovative industries.

• Erosion of Market Integrity: The reliance on manipulation rather than genuine innovation and competitive advantage creates a fragile industrial model. The CEO of Great Wall Motor warned of a potential “Evergrande of the auto industry,” highlighting the systemic risk.
• Questionable Innovation Push: Even the export of Electric Vehicles (EVs) is implicated. The practice of reselling subsidized EVs for quick profit raises questions about whether the industry’s growth is driven by a genuine commitment to sustainable technology (related to SDG 7 and SDG 13) or by exploiting subsidies and regulatory loopholes.

SDG 16 & 17: Peace, Justice, and Strong Institutions & Partnerships for the Goals

The circumvention of international trade norms damages institutional integrity and global partnerships.

• Weakening Institutions: The practice is facilitated by regional governments and a lack of robust regulatory oversight, indicating a weakness in institutional governance that prioritizes short-term targets over fair and transparent practices.
• Undermining Global Partnerships: The China Passenger Car Association’s defense of the practice as a “strategic workaround for global trade barriers” signals a disregard for established international trade rules. This unilateral approach creates friction and prompts retaliatory measures from trading partners, such as Russia and Jordan, who are tightening their definitions of “used cars” to protect their markets. This is antithetical to the collaborative spirit of SDG 17.

International Response and Market Impact

Trade Friction and Regulatory Pushback

Several countries are implementing measures to counter this practice. In 2023, Russia banned zero-mileage imports from brands with official local distributors. In Brazil, industry groups are lobbying for accelerated tariff hikes on EV imports to protect domestic manufacturing and jobs from a surge in Chinese vehicle shipments.

Case Study: BYD

BYD, a major player in this context, has aggressively expanded production, briefly overtaking Tesla as the world’s largest EV maker. However, the company is now facing consequences of overproduction, including:

• Slowing production and reducing factory shifts.
• Accumulating critically high inventory levels.
• Triggering intense price wars that have led to some dealerships failing.

Despite these domestic challenges, BYD exported approximately 20% of its 1.76 million vehicles sold in the first five months of the year, with a significant push into the Brazilian market, raising local concerns about the impact on sustainable industrial development.

SDGs Addressed in the Article

• SDG 8: Decent Work and Economic Growth
• SDG 9: Industry, Innovation and Infrastructure
• SDG 12: Responsible Consumption and Production
• SDG 17: Partnerships for the Goals

Identified SDG Targets

1. SDG 8: Decent Work and Economic Growth

   • Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 per cent gross domestic product growth per annum in the least developed countries.
     
     The article highlights that the practice of registering new cars and exporting them as used allows for double-counting of economic activity, which “is being recorded twice, raising China’s gross domestic product (GDP).” This directly relates to the manipulation of economic growth figures to meet “ambitious targets for economic growth set by the Chinese government.”
   • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labour-intensive sectors.
     
     The article discusses the automotive industry’s production and sales tactics. While it touches on technological upgrading (EVs), the core issue described—market manipulation to offload overproduced vehicles—undermines genuine economic productivity. Furthermore, the impact on Brazil, where officials worry the imports will “set back domestic auto production and hurt jobs,” shows how these practices can negatively affect labor-intensive sectors in other countries.

2. SDG 9: Industry, Innovation and Infrastructure

   • Target 9.2: Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product, in line with national circumstances, and double its share in least developed countries.
     
     The article describes an industrial practice that is unsustainable, as it relies on market distortion and overproduction rather than real demand. The criticism from Great Wall Motor’s CEO, who warned of “the Evergrande of the auto industry,” suggests the practice is a risk to the industry’s stability. The negative impact on Brazil’s domestic auto industry also shows that this form of industrialization is not inclusive on a global scale.
   • Target 9.b: Support domestic technology development, research and innovation in developing countries, including by ensuring a conducive policy environment for, inter alia, industrial diversification and value addition to commodities.
     
     The article mentions that Chinese consumers prefer EVs due to “generous government-funded purchase subsidies,” which is a policy aimed at supporting domestic technology. However, the same policies, combined with production quotas, have created a distorted market environment leading to the dumping of overproduced combustion vehicles and even subsidized EVs abroad for “quick cash.”

3. SDG 12: Responsible Consumption and Production

   • Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources.
     
     The practice of producing cars to meet quotas rather than market demand, leading to oversupply and the creation of a “zero-mileage” used car market, represents an inefficient use of natural resources, materials, and energy. The article notes that BYD is “grappling with rising inventory even after offering deep price cuts,” which is a direct consequence of this inefficiency.
   • Target 12.5: By 2030, substantially reduce waste generation through prevention, reduction, recycling and reuse.
     
     The overproduction described in the article is a form of pre-consumer waste generation. Creating an excess of vehicles that the domestic market cannot absorb (“the domestic market became oversupplied”) forces automakers to find alternative, inefficient channels to dispose of them, which is contrary to the principle of waste prevention and reduction.

4. SDG 17: Partnerships for the Goals

   • Target 17.10: Promote a universal, rules-based, open, non-discriminatory and equitable multilateral trading system under the World Trade Organization.
     
     The article details how the practice is a “strategic workaround for global trade barriers.” Countries are pushing back by tightening regulations; for example, “Russia issued a government decree to ban zero-mileage imports” and “Jordan is mandating a waiting period after a car is registered before it can be classified as used.” This highlights a conflict with a rules-based, open trading system.
   • Target 17.13: Enhance global macroeconomic stability, including through policy coordination and policy coherence.
     
     The article points to a lack of policy coherence within China, where the central government “decided to condemn the practice” while “regional governments… were benefiting” and promoting it. This internal conflict, coupled with the destabilizing effect on international markets like Brazil’s, demonstrates a failure to enhance global macroeconomic stability.

Implied or Mentioned Indicators

1. SDG 8: Decent Work and Economic Growth

   • Annual growth rate of real GDP: The article explicitly states that the practice of double-counting sales is “raising China’s gross domestic product (GDP),” implying this is a key metric being manipulated.

2. SDG 9: Industry, Innovation and Infrastructure

   • Manufacturing output and sales volume: The article provides specific figures, such as “BYD sold 4.27 million cars last year” and targeted “5.5 million for 2025.” These figures are used as indicators of industrial performance.
   • Vehicle inventory levels: This is a direct indicator of overproduction. The article specifies that “BYD dealers have an average inventory of 3.21 months… whereas the inventory level industry-wide was 1.38 months.”

3. SDG 12: Responsible Consumption and Production

   • Volume of exported “used” vehicles: The article quantifies the scale of the issue, stating that “436,000 used passenger and commercial vehicles China exported in 2024.”
   • Proportion of “zero-mileage” cars in used exports: This indicator measures the extent of the specific manipulative practice, with an estimate that “90% of the… used… vehicles… were zero-mileage cars.”

4. SDG 17: Partnerships for the Goals

   • Share of imports in a national market: The article indicates that in Brazil, “China-built vehicle imports are expected to grow nearly 40% this year… accounting for about 8% of total light-vehicle registrations.” This measures the impact on a trading partner’s market.
   • Trade tariffs and regulations: The article mentions trade policy responses as indicators of friction, such as Brazil’s plan to “increase Brazil’s tariff on all EV imports to 35% from 10%” and Russia’s “ban zero-mileage imports.”

SDGs, Targets, and Indicators Analysis

Source: instituteforenergyresearch.org