Chinese drift: why localization of foreign car production in Russia is important

China has long been Russia's main trading partner, but the growth of trade turnover does not always lead to the transition of cooperation to the investment stage. Having turned out to be alternative suppliers for many industries, Chinese companies multiply their profits, but experts estimate that there are very few long-term investment projects. An illustrative example is the automotive and automotive component industries. Izvestia reports on how car brands from China can strengthen their positions in Russia while helping the domestic car industry.

Last year, passenger car exports from China to Russia increased by 30.5% to a record $15.2 billion. There are dozens of automobile brands from China in domestic car dealerships. At the same time, apparently, only Haval expects to gain a serious foothold in Russia: starting in 2025, the automaker will expand the plant's capacity near Tula by about a third, to 200 thousand cars per year.

However, large-scale assembly projects are still more popular. For example, the Vostochny Outpost company plans to assemble commercial vehicles in Vladivostok, primarily trucks and vans. It is assumed that the line will consist of various Renault Master modifications, for which car kits will be supplied from China.

Experts remind that Chinese companies are not subject to sanctions restrictions, they have access to the cheap capital market (the key rate of the Central Bank of China is about seven times lower than the Russian one) and the opportunity to obtain Western equipment and components. This gives China serious advantages over Russian manufacturers operating under sanctions.

In the Russian market, Chinese brands operate mainly through imports — either from China or from Belarus, while companies in China do not invest in the creation of car production facilities in the Russian Federation, stated economist Nikita Krichevsky.

— The revenue of Geely's Russian subsidiary increased from 36.6 billion rubles to 199.6 billion rubles from 2021 to 2023. However, in 2023, after 16.8 billion rubles of profit, a loss of 3.9 billion suddenly appeared. The company explained this by the fact that 13.2 billion rubles of dividends were paid in favor of the parent company," the expert said.

It is assumed that Chinese companies withdraw money from Russia and direct it to the development of their automotive industry. This approach is not beneficial for the Russian Federation, especially against the background of the decline in the domestic automotive market: analysts at the Autostat agency said that sales of new passenger cars in 2025 could decrease by 10% compared to 2024, to 1.43 million units.

— Our average forecast is minus 10% by this year, if nothing changes. Personally, I think that next year (in 2025. A lot will change, there will be tectonic changes in the market. This market can go up or down, but it won't fail very much," said Sergey Tselikov, director of Autostat, last year.

And it seems that the predictions are coming true. As follows from the statistics provided by the Ministry of Industry and Trade of the Russian Federation, sales of new passenger cars in Russia in February 2025 decreased by a quarter year-on-year and amounted to 77.3 thousand units. Compared to January 2025, the market for new passenger cars decreased by 13%.

As a result, car manufacturers' warehouses are overstocked. AvtoVAZ recently announced that the stock of the automaker and official dealers has reached 100 thousand. Lada at a rate of 60 thousand. It was also reported that warehouses were overstocked with Chinese brand cars. The stock of foreign cars is, according to various estimates, from 400 to 500 thousand units. The situation, according to experts, is getting worse, as there are enough car stocks for four to five months.

— But they are produced and imported. So the situation is difficult, if not critical," says independent expert Oleg Moseev.

In other words, sales in the car market are weak, while car imports continue to increase in certain segments. For example, in the light commercial vehicle market, in February 2025, sales of Russian LCVs decreased by 30% compared to February 2024. At the same time, sales of imported LCVs increased by 10%.

— Yes, our market is saturated now thanks to Chinese companies, which account for more than 50% of sales. Cars that are mainly made in China. This means that China still has the same innovations, technologies and jobs that create high added value and profit from sales. And it is not a fact that there will be no interruptions in the supply of Chinese cars that the Russians love, if instead of the expected easing of sanctions, they suddenly become sharply tougher. Although the probability of such a scenario is low, it would not be very good for the economy, to put it mildly," experts from the Stolypin Institute for Growth Economics say.

Experts believe that given the fact that in the second half of last year, almost 20% of China's automobile exports went to Russia, Beijing and Moscow should clarify the terms of cooperation — in the field of investments in the production of components in the Russian Federation, in the creation of development centers and technology transfer. For the Russian automotive industry, this would be an additional source of investment in national projects.

This circumstance acquires additional significance in the context of the possible return to the domestic market of Western corporations that left Russia in 2022.

— It is already being discussed that the return of German, Japanese and Korean manufacturers may be associated with the requirements for significant localization of production. But even despite the poor sales dynamics so far, stricter requirements can be imposed on absolutely everyone, the Institute of Growth Economics is confident. — Why: the potential capacity of the Russian automotive market may reach 3-4 million new cars per year in positive scenarios. This is almost 5% of global sales in 2024.

In other words, Russia has a strong negotiating position, especially since the number of people willing to sell in Russia will increase in the future, experts believe.