[HONG KONG] Russia turned into a lucrative market for Chinese automakers after the invasion of Ukraine, as they rushed in to fill the void left by foreign brands. That easy access may be over.
In late 2024, Moscow started raising a “recycling fee” on imported vehicles that’s seen the price of passenger cars with one- or two-litre engines go up by the equivalent of more than US$8,000. High borrowing costs, meanwhile, have weighed on consumers, causing Russia’s auto sales to contract by 27 per cent in the first half. Imports of Chinese cars plunged 62 per cent in the same period.
The collapse of the Russian market has intensified the pressure on Chinese manufacturers to ramp up exports to other places overseas as they battle with a price war and overcapacity domestically. But this could also prompt more trade protectionism; a handful of regions have already introduced tariffs to slow the onslaught of Chinese auto exports.
The European Union introduced an additional import tariff of up to 35 per cent on Chinese EVs in 2024, citing unfair competition due to manufacturers receiving government subsidies, while the US and Canada have a 100 per cent levy. Mexico, which overtook Russia in receiving the highest number of Chinese car exports starting from this year, is also now mulling raising tariffs on Chinese goods, including autos. This is an attempt to meet US President Donald Trump’s demands as the two countries try to negotiate a trade agreement.
“Chinese brands’ overall market share in Russia has approached its upper limit of 50 to 60 per cent, and future growth may be constrained by local policies and market capacity,” Rosalie Chen, a senior analyst at research firm Third Bridge, said. “Additionally, with expectations the Russia-Ukraine war may come to an end, Western automakers are gradually seeking to return, which could slow the growth of Chinese sales.”
Demand from Russia helped China to become the world’s largest car exporter in 2023. And nearly one-fifth of China’s whole-car overseas shipments went to its neighbour last year, China customs figures show. A reduced Russian market is already hitting the top three most popular Chinese car brands there.
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Exports contracted 8 per cent for Geely Automobile Holdings in the first eight months of this year, while for Great Wall Motor, they were largely flat. China’s largest auto exporter, Chery Automobile, saw its overseas shipments grow 11 per cent in the same period, but that was down from a 25 per cent increase last year.
In a sign of the intense competition from homegrown rivals, China’s No 1 car seller BYD, which does not have an official presence in Russia, more than doubled its overseas sales and is nipping at Chery’s heels for the export crown.
Geely executives said the disappointing exports were one of the few blemishes on otherwise stellar first half and pledged the automaker would work harder to diversify its overseas markets. Geely brands plan to enter Brazil, South Africa, Italy and the company has said that it will expand its international sales and distribution network.
Paul Gong, head of China autos research at UBS Group, noted that economic cycles happening in various countries aren’t something Chinese, or indeed any, automakers can control. He pointed to 2015, when the Russian rouble fell and signs of weakness in Chinese economic growth set off a chain reaction that led to the depreciation of currencies in Malaysia, Indonesia, Brazil and other emerging markets.
“What they can do is seize business opportunities that exist,” Gong said. The Middle East and Latin America are two areas currently exhibiting promising growth for Chinese exporters, for example, he said. “If opportunities are scarce in certain regions, then carmakers should actively seek out alternatives.” BLOOMBERG
