What are the prospects for the export of Chinese cars to Russia?

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The growth of China’s foreign trade turnover depends on optimizing the country’s trade structure, stimulating innovation, promoting the digitalization of enterprises and expanding partnerships in foreign trade.

China and Russia have developed a unique model of interstate trade profitable and promising relationship in recent years. Contacts in all areas have intensified between China and Russia, including at the highest state level.

China’s trade with Russia reached 65.81 billion USD in the first five months of 2022. This is 28.9% more than in the same period in 2021. The volume of goods traffic demonstrates a significant growth dynamics. This also applies mutual exports and imports from China to Russia. The share of settlements in RMB when working with Russian partners is increasing against this background.

The grand opening of the automobile bridge across the Amur River in Blagoveshchensk took place in Russia in June 2022. This confirms serious intentions towards strengthening Chinese-Russian cooperation. 630 trucks, 164 buses and 68 cars will be able to cross the bridge daily. This is intended to increase the flow of trade between countries.

Approximately 70% of goods exported from Russia to China include oil, natural gas and coal. Copper and copper ore, timber, fuel and seafood are among other raw materials. The PRC exports many different goods to Russia in turn. Smartphones, industrial and specialized equipment, children’s toys, shoes, air conditioners, computers and vehicles make up a significant share among them. The volume of cars supplied to the Russian market from China has been growing steadily in recent years.

At the same time, the automotive market is going through tough times as well as most of the Russian economy sectors. The restrictions that were introduced by Western countries in relation to Russia significantly limit the supply of cars to the country. In May 2022, sales of new cars in Russia decreased by 83.5% compared to the previous period. The fall was 52% over the five months. Delivery of the vehicles through official channels to Russia is almost stopped. Still some Chinese and Korean automakers carry on deliveries.

At the same time, rising prices have a negative impact on the already low consumer demand. The situation for Chinese brands is similar. New cars of European brands are still present in dealerships now. Stocks will cover the needs only for 4-6 months. Therefore, the legislative support of the state should be focused on the future of the car market. It is necessary to develop the infrastructure of the EV charging stations in the country in the shortest possible time. This will be a good driver for the supply of electric vehicles, from China as well.

At present Russian experts, predict a decrease in car sales in Russia more than 3 times to sales in 2021. This means that sales will not exceed 500,000 new cars at the end of the year. However, this volume is driven not by the demand of Russian customers, but by the possibilities of exporting cars to the country.

Despite the fact that the volume of sales of Chinese brands in Russia is still small, their market share is gradually growing. Therefore, in May 2022, according to the data of the Association of European Businesses, sales of Chinese cars in Russia decreased the least – by 64.6% compared to May 2021. That enabled Chinese automakers increased their market share to 13%.

China has more automakers than any other country. Over 80 brands are introduced there. Geely, Haval, Chery and Changan are the most popular in Russia. The decline in sales of these brands in May was significantly lower than the overall decline in the Russian car market. It ranged from 6% to 21%. For instance, AVTOVAZ (best-selling brand in Russia) had a 58% down collapse.

According to Russian Automotive Market Research, there were 3,164 dealerships in Russia in April 2022. This is 84 car dealerships more than a year earlier. The growth was mainly due to the expansion of the dealer network of Chinese brands. For example, CHERY opened 24 dealerships, EXEED opened 18 dealerships, HAVAL opened 15 dealerships.

According to the Russian analytical agency Autostat, ? 723 dealers of Chinese automakers are currently operating in the Russian Federation. This is 22.5% of the total number of car dealers in the country. More than a quarter of them (26.8% or 194 dealer centers) are located in the Central Federal District of Russia. There are slightly fewer dealers of Chinese brands in the Volga Federal District (23.4% or 169 dealers). From 80 to 90 dealers from China (11-12%) are located in four more districts (Northwestern, Southern, Ural and Siberian). They are least of all in the North Caucasus (10 or 1.4%) and the Far East (9 or 1.2%).

The growing popularity of Chinese cars in Russia is connected not only with better availability compared to other car brands, but also with the technological changes that the cars themselves have undergone. The Chinese auto industry is rapidly changing. The original high-quality design and advanced technologies for the aggregate part and equipment set are in trend today. Chinese cars outperform Korean, Japanese and European models in terms of equipment due to the included comfort and safety options. In addition, Chinese automakers are very flexible and customer-oriented. They change the lineup according to the requests of Russian buyers.

The leading Chinese companies on the Russian market are Haval, Chery, Geely, Changan. They have a serious potential in the Russian Federation. However, only the localization of production can provide long-term leadership. Accordingly, the prospects for Haval and Geely are seen as the best so far. The Haval plant has been operating in Tula since 2019. Its capacity is 80,000 vehicles per year. The company has invested 1.5 billion USD in Russian manufacturing. It plans to increase the plant’s capacity to 150,000 vehicles a year. Geely assembly plants are located in Russia-friendly Belarus.

The possible withdrawal of several American, European and Japanese brands from the Russian car market at once, due to the sanctions imposed against the country, will most likely lead to the fact that the share of Chinese brands in the Russian market will grow even more. The number of dealers will also increase. This concerns not only the strengthening of the position of players from China, which are already on the Russian market, but also the possible emergence of new brands from China in the country.

Most Russian automotive dealers now want to become official dealers of Chinese car brands that are already represented in the country. However, dealer networks of market leaders – Haval, Chery, Geely, Changan – have sufficient coverage in the country. Therefore, it is now difficult to talk about the extension of the existing dealer nets in Russia in the near future. At the same time, several other promising brands are actively working in the domestic Chinese market. So, the big players who for some reason are not very active in Russia right now: FAW, Dongfeng and Lifan will probably become activate their position again after a while.

Avtodom Group of Companies, one of the largest automotive holdings in Russia, which specializes in the sales and service of premium and luxury cars, is confidently coping with external challenges, despite the uncertain situation in the Russian car market. Stocks of cars in warehouses Avtodom will be enough for another 5-6 months. The company is open to dialogue with all partners. It is actively negotiating with Chinese automakers to obtain official dealerships. Avtodom shows the greatest interest in the brands HongQi, NIO, BYD and Saic. The company also considers it promising Chinese electric vehicle manufacturers to enter the Russian market.