A Travel IPO and a Plan to Export Used Chinese Cars

Huoli could become China’s first online travel agent to list in quite some time. And auto trader Cango is trying to export used Chinese cars.

By Doug Young & Rene Vanguestaine

A Modest Travel IPO: Huoli Attempts to Take Off

Huoli, an online travel agency, has applied to list on the Hong Kong Stock Exchange, making it the first Chinese travel-related IPO in a long time. Though it is far smaller than major competitors like Trip.com and Tongcheng, Huoli’s move to go public is still noteworthy as it reflects renewed confidence in the travel sector’s post-pandemic recovery.

The pandemic hit the Chinese travel industry particularly hard, largely because of China’s stringent lockdowns. Even now, it seems that Chinese consumer sentiment is hesitant, and caution continues to cast a shadow over spending patterns. Travel, however, seems to be bucking the trend, and it will be interesting to see how the market responds to Huoli’s listing. Some interest is expected, especially given the broader wave of IPOs in Hong Kong. But the bigger question is whether Huoli can maintain any momentum after the offering. The competition, notably from Trip.com, is fierce and well established in China. Those rivals offer one-stop shops for flights, trains, accommodation, and more, making it hard for Huoli to find a meaningful foothold.

Even though domestic travel in China is currently thriving, fueled largely by so-called “revenge travel” after the lockdowns, sustainability remains a concern. If the economic outlook remains lackluster, the desire for discretionary spending on travel might wane, especially if consumer sentiment doesn’t improve. While Chinese tourism has rebounded significantly, business travel has yet to reach pre-pandemic levels, which could further hinder Huoli’s growth.

Used Chinese Cars Go Global: Cango’s Ambitious New Gamble

Our second topic focuses on Cango, a company that initially entered the market as an auto financier but is now trying to capitalize on China’s booming auto export sector. In March, Cango launched a new website targeting overseas buyers for used Chinese cars, and it appears that they are attempting to carve out a greenfield in the export business for pre-owned vehicles.

Chinese automakers have seen tremendous success with exporting new cars, particularly electric vehicles (EVs), in recent years. But used cars are a different beast entirely. For one thing, the target market for used Chinese cars is likely to be developing countries, particularly those in Southeast Asia. However, questions remain about whether these markets are truly ready for Chinese secondhand cars. While the cars being showcased on Cango’s website include a mix of Chinese and foreign brands, issues like service infrastructure could be a significant hurdle. Buying a used car inevitably comes with service needs, and without a network of local dealerships or repair shops, customers may struggle to find adequate support. For China-made used cars from well-established brands like Volkswagen and BMW, there might already be a supporting infrastructure in place. But for many lesser-known Chinese brands, the risk for customers could be high.

Beyond the service concerns, exporting used cars presents a logistical challenge in itself. Importing individual vehicles or small numbers of cars that vary significantly from each other can be a complicated process, far different from shipping a thousand identical new vehicles. Potential buyers, whether individuals or small car dealers, will face hurdles in transporting and ensuring the quality of their purchases. The likelihood of logistical issues throwing a wrench in Cango’s plans is quite high, at least in the early stages.

Nevertheless, there is potential for a cottage industry of intermediaries or facilitators to emerge, similar to what happened decades ago in the U.S. and Europe when parallel channels developed for importing cars. In fact, there are historical precedents for this kind of trade. In the 1990s, individuals set up businesses to import European luxury cars into the U.S., offering them at prices lower than those found at official dealerships. Similarly, there were traders in Belgium buying used cars for export to Africa decades ago. These examples suggest that if the market finds value in used Chinese cars, intermediaries could step in to ease the process and make it work.

Cango’s target audience may primarily be small dealers rather than individual buyers, which could help mitigate some logistical challenges. If these dealers can successfully navigate the complexities of importing, the venture may just find its niche. Ultimately, much will depend on whether Cango can make the business model feasible, both in terms of logistics and after-sales support, and whether developing markets find value in affordable secondhand vehicles from China.

About China Inc

China Inc by Bamboo Works discusses the latest developments on Chinese companies listed in Hong Kong and the United States to drive informed decision-making for investors and others interested in this dynamic group of companies.

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