You may be aware that Taobao is a renowned online shopping website in China, like e-bay in the US, but would you ever imagine that you could purchase a cargo vessel, by way of judicial auction, on Taobao?

Following the sustained downturn of the Chinese shipbuilding market which has seen many buyers withdraw from shipbuilding contracts, and many shipyards suffer or collapse, it has become a very popular trend among Chinese courts to arrange the judicial sale of second-hand vessels (and hulls under construction) by way of auction.

Since nine of the ten maritime courts of China (excluding the Qingdao Maritime Court) have chosen Taobao as their first option for arranging the judicial auction of vessels, an increasing number of companies are aiming to make profit by acquiring ships via the site.

As we were recently involved in various judicial auctions for non-Chinese clients, we would like to share some tips on what a foreign client needs to know to successfully participate in an auction, and purchase a vessel on Taobao.

How to register as a bidder

A Chinese company or citizen who has a Taobao Account can register as a bidder after remitting the deposit of the auction to Taobao through its Taobao Account. However, the points below should be carefully noted.

  • Only a Chinese company or citizen can apply for a Taobao Account according to current Taobao rules, and so, a foreign client has to appoint a Chinese company or citizen as its "bidding agent" to participate in the auction.
  • According to the standard auction rules authorised by the Court, the owner of the Taobao Account (i.e. the biding agent) will automatically be deemed the bidder, and obtain the title of the vessel if it wins the auction. If a foreign client wants to obtain the title of the vessel directly from the Court, it must disclose to the Court, before the auction begins, its identity and the Taobao Account used for the auction, as well as authorisation documents in favour of the bidding agent.
  • As for the deposit, it can be remitted to Taobao before the auction ends. The deposit amount, which is usually announced 30 days before the auction, varies depending on the various ship types and different courts, but will not exceed 30% of the starting auction price according to our experience.
  • Taobao only accepts Renminbi (RMB) as deposit due to China's foreign exchange control policy.
  • Anyone can register as a bidder before the end of the auction, subject to the above restrictions.

A brief introduction of the standard auction rules

We set out a few key features from the standard auction rules, below, however, it should be noted that these may be varied by the different courts.

  • The auction will last for 24 hours.
  • The auction provides for a bid time-extension feature, whereby an auction is automatically extended by five minutes if a bidder bids within the last two minutes before the end of the auction.
  • If a bidder wins the auction, the deposit will automatically be remitted to the Court's account, and the bidder has to pay the balance of the auction price to the Court's account within a period appointed by the Court (usually within 10 days).
  • If a bidder loses the auction, the deposit will automatically be refunded to the bidder's Taobao Account, usually within 5 days after the auction.

Transferring the title of the vessel by the Court

After receiving full payment of the auction price from the buyer winning the auction, the Court will issue documents certifying the buyer's title to the vessel.

  • The buyer is required to issue an Auction Confirmation to the Court within 3 days after the end of the auction.
  • After full payment of the auction price to the Court, the Court will issue an order declaring that the clean title of the vessel is transferred to the buyer without any encumbrance.
  • There will be no taxes for obtaining the title of the vessel from the Court by means of judicial auction, but some customs duties may arise if the vessel is to be exported outside of China.