What China's Takeover Of Russia's Car Market Means
- 24.05.2025, 12:29
Protectionism won't help.
Assembly under local brands with minimal investments - this is the strategy of Chinese automakers in Russia so far. The Russian authorities expect the Chinese to open real car factories, but is there any reason for this?
An unexpected news for many in Russia was reported in mid-May by the Central Research Institute for Automobiles and Motor Vehicles (NAMI), which is subordinate to the Ministry of Industry and Trade and controls AvtoVAZ.
It turns out that the products of the main Russian automaker are half assembled from Chinese and Turkish parts. The best indicator of localization is the Lada Granta, but it consists of Russian components only 45.7%.
This is almost two times less than reported by AvtoVAZ itself. The president of Russia's main automaker Maksim Sokolov said, and not for the first time, that the Lada lineup is localized by more than 90% on average. And Lada Granta, he claimed, is almost 100%.
The confusion was diplomatically explained by NAMI analyst Alexander Gorchakov as a possible difference in localization assessment methods. The institute has it - official, point-based, from the government, approved as early as July 17, 2015. AvtoVAZ has its own, allegedly actual, in shares of units and parts.
NAMI tactfully admitted that the heads of the Russian automobile concern may be telling the truth about import substitution. Well, they didn't back up their words with documents - that's because, as it turns out, carmakers confirm localization at the minimum score sufficient to prove the commitments made to the government.
Reasons
It may very well be so. And the fewer documents, the more opportunity to improvise - and in times of war and sanctions against an aggressor country, that's an important option. In December 2024, it became known that AvtoVAZ had changed the supplier of head optics for the Lada Granta from Uzbek to Indian.
But it is also very likely that the reasons for the difference in import substitution do not end with this. There is another, no less plausible version. The low level of localization is also a consequence of the loss of auto component base from suppliers in Russia due to Vladimir Putin's decision to invade Ukraine.
Before February 2022, many Russian suppliers, formally considered "domestic", were subsidiaries of Western companies or used their parts to assemble components in Russia - examples are the Russian plants of Raymond Group and Valeo (France), Autoneum (Switzerland) and Magna (Canada), which produced parts for Lada, among others.
Western auto component manufacturers in Russia also supplied parts and assemblies for local plants of Renault, Nissan, Volkswagen, Volkswagen, Toyota, Ford, Peugeot and Citroen. After sanctions were imposed in 2022, the auto companies curtailed production, and key Western suppliers stopped cooperating with Russia.
AvtoVAZ, 75% owned by Renault, found replacement auto components primarily in China and Turkey. "It's not the fact that it's straight China-China all over, but let's say, from all over the world one thread at a time," says a Russian auto expert. - In general, the percentage of automobile parts, components produced in Russia is very low."
In addition, we should not discount another factor of double accounting for auto components. Back in 2020, experts estimated the level of localization at AvtoVAZ at no more than 50%. The car concern simply did not take into account the share of hidden imports, when a part is purchased abroad by a third-party company and then sold in Togliatti. The new Russian owners of auto component production facilities (1, 2, 3) could well continue this tradition.
The price of salvation
After the full-scale invasion of Ukraine, the global car brands that left Russia were replaced by China. On this occasion, Vladimir Putin, at a meeting in the Kremlin with Si Jinping, who came to Moscow to celebrate May 9, said with pride in his voice: "Russia has become the main importer of Chinese cars in the world."
But isn't it strange that the national leader, who has been promoting import substitution as the most important strategic task since 2014, is rejoicing at the world record in imports of Chinese cars? Is it possible to wave Russia as the leading partner in the auto industry of the main economic rival of the United States.
The Kremlin beckoned the Chinese to see for themselves the attractiveness of the Russian car market and prevent it from collapsing and stalling. After February 2022, China received, among other things, the Russian sales market along with access to Western, South Korean and Japanese factories to assemble Chinese cars for Russia.
At the German VW plants in Kaluga and Mercedes-Benz in Solnechnogorsk near Moscow, the new Russian owners began to assemble repackaged cars from the Chinese company Chery. The same - at the Japanese plants Mazda in Vladivostok and Nissan in St. Petersburg. The Avtodor plant near Kaliningrad, which used to produce, among other things, BMWs, also switched to Chinese brands.
This was, of course, a political choice, largely situational. In 2024, it was confirmed by Putin, who said Russia "welcomes the active expansion" of Chinese carmakers in the country. In 2024, the share of Chinese brands in the Russian new car market reached nearly 60% (versus 2% in 2019).
China alone now controls slightly less than Western, Japanese, and South Korean automakers combined through 2022 (about 69% of the new passenger car market in Russia). And the Russian car industry itself is, in fact, two-thirds Chinese: the level of localization of passenger cars produced in Russia in 2024 was only 32.8%.
The Stake in Protectionism
Putin used the thesis of "fair competition" to praise Chinese carmakers. China was seen in the Kremlin as a replacement for the departed global automakers, to help and keep the Russian auto industry in tone.
But it turned out differently. China began to displace endemic Russian automakers, and the concept in the Kremlin changed. Because AvtoVAZ in Russia is also a political issue. The Russian leadership certainly does not want to give the entire car market in the country to China.
The government's hope for barriers is partially justified. The so-called recycling fee on imported cars, 80% of which are from the Chinese car industry, raised sharply in October 2024, has led to a noticeable rise in their prices.
As a consequence, the share of "Chinese" in 2025 fell to 54.5%, while the share of "Russians" went up. AvtoVAZ's market share in March 2025 returned to 31.5% from 27% a year earlier (Avtostat data). And Russia has fallen to the third place for China in terms of car exports (so Putin was wrong again with the data at the negotiations).
The Russian government plans to index the scrappage tax every year by 10-20%, which fixes the preferences of AvtoVAZ. The law on cab localization has also been adopted for it, which allows to drive passengers only in Russian cars from 2026. Of course, Russians will pay for all these protectionist measures.
All this will help the Russian car industry only for a while. In April, despite all the protectionist injections, the head of AvtoVAZ, Maxim Sokolov, regularly complained that Chinese automakers were taking over the market for new cars in Russia. And said that this "should be investigated."
The cautiousness of the wording can be explained by a certain predictability of who could be targeted in such an investigation. In fact, Putin himself told the Chinese leader on May 8 that the Kremlin expects Chinese manufacturers to "set up production facilities and transfer Chinese industrial competencies to our country."
Protectionism will not help
Three years into the war with Ukraine, Chinese car companies have not opened their own car factories in Russia. They have not imported technologies. They have not even set up auto component production. "Screwdriver assembly", body stamping and electronics adaptation are the necessary and sufficient minimum (aka maximum) for China.
NAMI estimates that in 2024 the models of the most popular Chinese brand Haval, which opened a plant in Russia back in 2019, were localized only by 15.1%. Why more when, as it is, China has already ramped up both imports and local production at the facilities of departed global automakers and one has taken almost all of their share of the auto market in Russia?"
Because of risks, including secondary sanctions, the Chinese government has "strongly discouraged" its carmakers from building production facilities toward Russia. Chinese automakers operate globally and the risks of U.S. and European sanctions are sensitive and lose out to potential benefits for them. Russia cannot replace the rest of the world for them.
But it's not just about sanctions. Let's say they were lifted from Russia. There is still no convincing explanation why China, the world's largest exporter of automobiles, would want to create a full-fledged infrastructure for the production of automobiles and auto components in Russia. Why would China, where twice as many cars are produced as can be bought?
China's domestic car market is the largest in the world, almost as large as the markets in America and Europe combined. The likelihood that Russia's protectionist measures will move China to take the place of brands that have left Russia is, let's say, low.
China's dominance in Russia under war conditions looks situational, despite all the Kremlin's talk of a strategic U-turn to the East. In 2025, Russians refused to buy cars en masse as soon as there was hope for the return of global brands amid talk of Russia's peace with Ukraine (many still have options to buy back their production facilities in Russia).
Even if these are empty hopes, for strategic decisions China will wait until the end of the war.
Vladimir Ruvinsky, The Mosow Times