Reselling confiscated items auctioned off by Shenzhen Customs has become the

mainstay of some small and medium-sized enterprises and individuals. Evelyn Yu reports.

The 18K gold Cartier watch Lin Gang wears is shown on the company's official website for over HK$200,000. Lin has two of them for which he paid only some HK$30,000 each. His secret? He bought them at a public auction by Shenzhen Customs.

His golden treasures were contraband items numbered among a remarkable array of goods confiscated at the border. Much of what's confiscated ends up as cinders, pirated CDs, pornography, smuggled cigarettes. But the remaining good stuff goes up for auction, snapped up by the public at large, at irresistible prices. Proceeds go to the State treasury.

In 2015, Shenzhen Customs intercepted a total of 335 smuggling cases with an estimated value of 4.3 billion yuan ($648 million). Shenzhen Customs recorded a sale of 104.3 million yuan in public auction last year. Properties on sale consisted of seized goods that year as well as remaining contrabands from previous years.

Auction houses, small and medium-sized enterprises and even individuals can make a fortune on the customs' backyard sales, at a hammer price sometimes 50 percent discount or even more, below market.

Good bargain

Lin Gang is among the earliest customs auction dealers in Shenzhen. He has been buying confiscated goods since 2002. Lin recalled that before the internet became a major factor of day-to-day life, auction announcements were published only in local newspapers. Lin had few competitors then. Most people didn't even notice the public announcements about the auctions. About a dozen people would show up in the auction house and walk away with deals at slightly more than the opening bid price.

"In the early 2000s, the auctions were monotonous. There were either cellphones or computers. With the rise of parallel traders we've been getting imported wines, luxury clothing, handbags, rare medicinal herbs, in much better variety and greater quantity," said Lin.

In good years Lin's company spends some 100 million yuan buying confiscated goods from customs. He has four big warehouses in Shenzhen, stocking, as Lin put it, almost everything from ski goggles, baby monitors, luxury watches to edible birds' nests. Lin has been building up distribution channels over the years. He sells mobile phones to electronics stores, retails ginseng in his e-commerce stores on Wechat, has a brick and mortar store where friends can come by to pick up some fine imported wines. Business is flying high. Lin took in profits of around 10 percent on the purchase of goods worth 50 million yuan last year.

Bidders like Lin are not the sole beneficiaries of the customs' clampdown on rampant cross-border smuggling. Auction houses that specialize in customs' auctions are springing up already.

Xiao Qiang, a former operations officer of an AA auction house in Shenzhen, says commissions for auctioneers, usually 5 percent of the sales value, are the major income at specialty auction houses in Shenzhen. But success can depend on winning a lottery, more than hard work. The Shenzhen Finance Commission, which has charge over the confiscated goods, determines which auction house would be entrusted as Customs' agent for each of public sale by drawing lots.

Risky investment

The market is open to all, as declared in the announcements from Shenzhen Customs. Anyone who registers and pays a deposit is eligible to bid. Yet average citizens are usually discouraged by the high threshold for getting in on the auctions.

Customs bundles all sorts of confiscated goods into single lots. In one public auction this July, five Michael Kors handbags, 200 mobile phones, hundreds of liquid-crystal display devices and thousands of Intel central processing units were sold as a single lot. Starting prices on deals like that easily run into millions of yuan.

Huang, a millennial who had to borrow money to join the bidding, says he invested about 3 million yuan last year. Sometimes he gets watches, jewelry, cutlery, and clothing at discounts of almost 70 percent from the market price. He wholesales his purchases to varied e-commerce stores on Wechat for around half the market price. In just over a year he and his partners made a profit of 300,000 yuan. The stable income allowed him to quit his job at a small factory in Dongguan, Guangdong province, where he described himself as bumbling through life.

There is risk. Huang says sometimes popular products are bundled with items nobody wants. But they come as part of a bulk sale, so that considerable quantities of unmarketable items pile up in his Shenzhen warehouse.

Though bidders now have access to auction information online, the list of auction items provided by the customs, a week or two before an auction, offers only general descriptions. To have a close look at the goods bidders turn to the auctioneers for close inspection prior to the auction. The bidders can take their time in inspecting in real practice, however, when there are too many bidders, crews often are there to hurry people along. Lin complained that sometimes he has only 10 to 15 minutes to view goods on offer.

Huang echoes that often second-hand cellphones are represented as new, some electronics are scratched, expensive cosmetics are near their expiry date. These discoveries often are made only after a successful bid. There's no customer service. Neither the government nor the auction house offer any warrant and take no responsibility for errors of description or even the authenticity of the goods.

Business is still good. Tales of buried treasures are spreading. Both Huang and Lin feel the growing intensity of competition. Compared with the few people who sat scattered in the auction houses years ago, today's auctions have already become overcrowded. And online bidding is taking over so that bidders can join from everywhere. Huang noted that while failed auctions were common years ago, these days almost everything sells after a couple of rounds of bidding.

Amid all products, Apple gadgets remain the most popular. Electronics shop owners from Huaqiangbei, a famous electronics market in Shenzhen, swarm to the sales.

Lin said he regretted just missing out on some 200 iPhone 6s on the day of the interview with China Daily. The bidding went up quickly from the initial 400,000 yuan, until after over 40 rounds the price had sailed over 800,000 yuan. He didn't have the funds to go higher and had to bail out. Huang reckons the latest iPhones are selling at auction prices only slightly cheaper than at the Hong Kong Apple store.

The future prospects are not promising. Some 1,200 courts in 28 provinces are turning to Alibaba's Taobao portal to sell contraband goods, including seized houses, cars and other high ticket items. Customs is following suit.

There are only five customs agencies listed on Taobao thus far. Many are smaller, comprising fewer items and therefore more affordable for average bidders. There are even some containing single items such as a pair of sunglasses or one female overcoat. These go quickly.

Much as Lin and other bidders fret over the changes that will cut down their margin, average citizens are happy to see the changes. While conventional auctions involve only the wealthiest, bidding on fine arts, and luxury items at sky-high prices, ordinary customers are now joining in to bid for imported wines, handbags, and smartphones.

Contact the writer at evelyn@chinadailyhk.com

(HK Edition 08/03/2016 page8)