2023-07-21 10:35:49
par Sonia Romero
posted on Friday July 21st, 2023 at 12:35 PM •
6 min read
The collaboration between Beijing and Moscow is strengthening and is now expanding to the automotive sector, taking advantage of the departure of Western companies since the start of the war in Ukraine. At the risk, for Russia, of seeing its industry gradually nibbled away by the Chinese.
The essential : China extends its shadow over an essential part of the Russian economy.
The Moskvich, Soviet icon, rises from its ashes thanks to a Russian public firm. The mayor of Moscow sees it as a sign of the resistance of the Russian automobile industry in the face of sanctions. But Moskvich 3 SUVs are actually Chinese JAC Sehol X4s assembled in Moscowaccording to two anonymous sources of Archyde.com. This brand is not the only one. Chinese cars flood the Russian market, with 49% share in Junecompared to 7% before the war in June 2021, according to a report of Autostat, quoted by the press agency. They reached 40,000 units last month. Between January and May 2023, exports of passenger cars from Chinese manufacturers to Russia were multiplied by 5.2 year-on-year to nearly $3.6 billion, according to data from China Customs. In addition to these numbers, Chinese companies are also increasing their sales in Russia with the assembly of vehicles in factories liberated by companies like Renault and Nissan. And it’s also good news for the Russian economy, while it is in decline: experts in the automotive sector believe that Chinese manufacturers help Russia restart its factories and keep its jobs. It’s not luxury, because the sector is suffering: locally manufactured cars only represented in June less than 40% of the Russian car market only, according to the government, once morest 70-75% before Moscow invaded Ukraine.
A dangerous game for Moscow
The context : Beijing intends to take advantage of the space left vacant by European and American brands, which have packed up under Western sanctions.
Archyde.com says that “six Russian factories that were previously owned or assembled by European, Japanese and American automakers are now producing Chinese models or planning to do so.”
What Autostat confirms : from January 2022 to February 2023, the share of Korean brands fell from 24% to 9% in one year, that of European brands from 27% to 6%, and that of Japanese brands from 18% to 6%. For their part, Russian national brands managed to increase their market share from 20% to 41%, while Chinese brands increased from 10% to 38%. Source: Autostat But it will be necessary to pay attention to do not let yourself be completely nibbled by the Chinese appetite, at the risk of seeing the Russian share decline even further. According to Andrey Olkhovsky, head of the Avtodom dealership chain, which took over the Mercedes-Benz subsidiaries in Russia: “Undoubtedly, the expansion of Chinese automakers in the Russian market will continue, there are no alternatives for the Russian automotive industry. However, if Chinese cars become more competitive in terms of price and quality, this might undermine the market share of Russian car manufacturers, which would have negative effects for the country’s economy and employment in the sector. According to Autostat, six of ten brands the most popular in Russia in June are Chinese automakers. The best known are friendwith a market share of 8.3% in June, Chery (5,1%) et Geely (4,6%)
In parallel : Moscow orchestrated the seizure of foreign assets by state entities to ensure the continuity of production. Russia was thus recently able to get its hands on the assets of Danone and Carlsberg which had not yet managed to leave the country.
The government took pride in this, highlighting in particular the revival of famous Russian brands thanks to these takeovers. While taking good care of passer (widely) ignoring the crucial role of China in the revival of the automotive sector. In reality, only the Russian Central Bank is bold enough to admit Beijing’s growing influence in the country. Moreover, Russia is all the more dependent on its Chinese partner as the margins and prices of these Russian-Chinese cars depend on the exchange rate of the yuan. This introduces additional volatility to the industry. Fluctuations in the exchange rate can affect production costs, sales prices and ultimately the profits of Russian automotive companies. This can make long-term planning and financial stability for the country’s auto industry difficult. Not to mention the dependence on China for parts and assembly kits necessary for the production of cars on its territory. The Middle Kingdom simply puts the Russian automobile industry at its mercy, in case of changes or problems in Sino-Russian trade.
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