According to the "Decision of the State Council on Amending the "Administrative Measures for the Recycling of Scrapped Vehicles" (Draft for Comment), the re-manufacturing of the "five major assemblies" of scrapped vehicles will be lifted.

According to the notice issued by the official website of the Legislative Affairs Office of the State Council, the trial of scrapped automobile remanufacturing carried out nationwide is an important measure for China to actively promote the development of circular economy. In the current Administrative Measures, the five major assemblies for scrapped automobiles are required. "It can only be sold as scrap metal to steel companies for smelting raw materials. Therefore, this regulation is no longer suitable for the development of automobile remanufacturing industry and is proposed to be revised.

"This will not only accelerate the development of automobile remanufacturing, but also release a large space for the automobile scrap recycling market," the industry analysts said.

The “five major assemblies” refer to the engine, gearbox, front axle, rear axle and frame of the car.

The "Management Measures for the Recycling of Scrapped Vehicles" promulgated in 2001 stipulates that the "five major assemblies" shall not be remanufactured. Since then, this regulation has been loosened in a small area in the form of remanufacturing pilots. In 2008, the “Administrative Measures for Pilots of Remanufacturing of Auto Parts” was issued, and 14 enterprises were approved to re-manufacture the “five major assemblies”. However, strict requirements can only reproduce the products of the company and can only enter after-sales. Since then, the scope and content of the pilot has expanded three times between 2011 and 2014. In the "Regulations on the Management of Recycling and Dismantling of Scrapped Motor Vehicles (Draft for Comment)", it is also proposed to allow the "five major assemblies" to be remanufactured. In December 2014, the National Development and Reform Commission issued a policy on the promotion of re-manufacturing products, while also subsidizing 10% of auto parts.

Data show that in 2015, China’s auto cancellation volume was 6.04 million, accounting for 3.51% of vehicle ownership. The amount of car recycling in that year was 1.7 million, accounting for 0.99% of the car ownership, accounting for 28% of the cancellation. The latest research report issued by Huajin Securities predicts that in 2016, China's vehicle recycling volume is expected to reach 2.8 million. In developed countries, the scrap rate (the proportion of scrapped vehicles and possession) is about 6% to 8%, and the recovery rate is 5% to 7%.

Even at a lower scrap rate, the amount of material recovered by China's auto remanufacturing companies cannot meet its limited production capacity, and one of the factors is the current “Recycling Vehicle Recycling Management Measures” for the “Five Major Assembly”. Prohibition of remanufacturing.

The lifting of the ban on the re-manufacturing of the “Five Major Assembly” means a huge market space in the future.

Dongxing Securities (21.900, -0.04, -0.18%) research report predicts that China's car ownership will exceed 200 million in 2020. If the scrap rate is 6% to 8%, the number of scrapped vehicles will reach 12 million to 16 million. The overall size of the scrapped vehicle recycling industry is expected to exceed 200 billion yuan.

"China's scrapped car dismantling and processing industry is expected to undergo three stages of development: capacity building, capacity upgrading and industrial maturity. At present, among the A-share listed companies, there are three types of companies involved in equipment, recycling and recycling. "This research report is a comment.

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