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Speculation: Russia might revoke Chinese made cars

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This week Russia's Economic Development and Trade Commission announced they are rejecting applications from Chinese automakers to build factories in Russia; it's also come to light that the one Chinese firm with a Russian factory license is likely to have theirs revoked
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Another related news from China Car Times:

It seems the Russians are getting very, very protectionist about their car industry, which seems to make nothing but terrible cars (except the Lada Niva). A few weeks ago we reported that Russia had ‘dropped the bomb’ on Chinese car makers, it seems the mustachioed, fur hat wearing policy makers in Moscow have gone a step further.

Chinese car makers often export cars to Russia using a CKD format (complete knock down) this means the factory in China gets all the right pieces together and ships them to a Russian factory where, the workers get the worlds hardest Airfix model to build. The Russian government originally charged a 15% tax on these CKD kits, as they are not a full car, but not individual pieces either.

The Russian government hauled Cherys partner in Russia, AVTOTOR, into court the other week charged with failure to pay an 80million USD tax bill. AVTOTOR claims the tax bill should be at 15% per CKD kit, but the Russian government now says the CKD kits are to be taxed at 25%, as the Chinese are essentially just sending ’screwdriver’ kits over the border, basically the cars just need putting together with a screwdriver.

To qualify for the lower 15% tax, Chinese manufacturers must send their cars unwelded, and without body paints, to further complicate matters Chinese manufacturers must have a license to operate a car factory (a car factory being able to spray cars, and weld them) n Russia, but of course they cant get that license.

Motoring industry sorts believe that Chinese car makers will be forced to quit the Russian market, as the cost of doing business is soaring.
Geely and Chery to retire from the Russian market?

We’re hearing rumors at China Car Times central that Russian authorities are once again twisting the thumb screws down on our very own Chery and Geely auto makers.

Previously Russia effectively made it very difficult for Chinese automakers to operate in Russia over the past few months, and have been slowly forcing the Chinese out of their markets. The latest issue for Chinese makers in Russia, is the raising of the automobile standard by the Russian authorities, which is forcing Chery and Geely to leave the Russian market. The latest rules from the Russian authorities relate to the tax paid on CKD kits, and how CKD kits actually qualify as CKD kits, Russian authorities also believe the emission standards of Chinese cars are too low.

The Chinese motoring press say that Chery has already basically pulled out of Russia, Geely will do eventually and Great Wall has had nothing but problems with Russian bureaucracy.

Despite the eventual leaving of the Russian markets, Chinese manufacturers have already invested millions of dollars into the market and sold many thousands of cars in Russia. Who will loose the most from this deal, the Chinese manufacturers, or the Russian people?

source: China Car Times
This is a perfect case of not paying enough bribes to the Russian officials - or that the competition are paying them off to get rid of Chinese cars.

Foreign makers are ALL OVER Russia, with American, European, and Japanese cars everywhere - so why all the hard time with Chinese cars, with tiny or no significant market share???

Pay the bribes or get out, that's the bottom line.
RUSSIA: Chinese automakers mull Rostov assembly plant

Summary: Chinese car makers Chery Automobile and First Automobile Works (FAW) are considering building a car assembly plant in Russia's Rostov Region, Ivan Stanislavov, the region's deputy governor, told news agency Itar-Tass on Wednesday.

Date: 20 February 2008

Source: editorial team
Chinese automaker Chery to organize full-scale production in Russia

China’s Chery Automobile plans to build a plant in the Russian Republic of Udmurtia, in the Volga region, to produce cars, engines, gearboxes, drive gear, and axles.
Chery President Yin Tongyao and Alexander Volkov, president of Udmurtia, discussed the possibility yesterday.
The Chery management is holding meetings with regional authorities and potential partners, according to the company’s representative in Russia.
Dmitry Rumyantsev of SOK Group, which owns the IzhAvto plant in Udmurtia, said no agreements had yet been reached, and that the plant was considering different options for increasing production, one of them being cooperation with Chery.
IzhAvto’s annual capacity is 200,000 automobiles, but this year’s plan stipulates production of only 71,000, Rumyantsev said.
Sergei Sanakoyev, head of the Russian-Chinese center for trade and economic cooperation, said Chery had long been looking for new cooperation opportunities in Russia. In his opinion, it has been disappointed by the joint project with Avtotor in the Kaliningrad Region, Russia’s exclave on the Baltic Sea, because it was not granted the promised privileges for the import of auto components.
Ruslan Sadykov, head of Avtotor-UV, said his company produced 42,000 Chery cars in 2007 and has signed a cooperation contract for 2008, adding that production would grow. In his opinion, IzhAvto is one of the options the Chinese are considering.
Yevgeny Bogdanov, an auto analyst at A.T. Kearney, a global strategic management consulting firm, said Russia’s Economic Development and Trade Ministry had stopped accepting requests for organizing foreign car assembly plants under privileged conditions last year.
He said Chery should not start the project in Utmurtia because its investments would not be recouped without privileges. Chery would spend too much on the delivery of auto components to Izhevsk, he said. Besides, labor is so cheap in China that it would be ineffective to assemble Chinese cars in Russia.
Moreover, IzhAvto assembles KIA cars, and the South Korean partner is unlikely to be happy to have a rival in such close proximity, the analyst said.
Mikhail Kontserev, head of the St. Petersburg-based Olimp dealership, which last year opened a Chery salon, said Chinese producers are scrutinizing the Russian market where cheap Chinese cars enjoy high demand.
He said Chery would have sold many more cars in Russia if not for limited production facilities and delivery problems. A full-scale plant would solve all of these problems, Kontserev said.
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bad news for chinese auto makers

I really doubt this will actually happen, but if it does, this is extremely bad news for the chinese car industry and its future of going in western markets
Why is it bad news ? They still have a monstrous Chinese market at home there.

At least, Chinese makers like Chery is not struggling like Toyota when it first ventured out of the homeland. And despite the struggle on foreign land like America and Europe at initial stage, Toyota still managed to grow into a monster like one today.
mememe said:
Why is it bad news ? They still have a monstrous Chinese market at home there.

At least, Chinese makers like Chery is not struggling like Toyota when it first ventured out of the homeland. And despite the struggle on foreign land like America and Europe at initial stage, Toyota still managed to grow into a monster like one today.
I agree, and never said that this is their downfall...what i meant is comparitively this is bad news since its one less good sized market. The bottom line is Chery Global, or GWM global might keep growing but will have 5-10% less revenue than they could of had if they were in Russia
Russia's new certification to affect China's auto exports

June 23, 2008 - The Russian government will implement the revised version of its certification system for vehicle imports starting July 1, which will raise the standards for foreign carmakers to enter the Russian market and affect China's auto export to Russia.

Russia has used three means of importing vehicles: temporary import in small quantities, one-year import, and three-year import. But from July 1 when the new certification system takes effect, the temporary import will be canceled, and some of the three-year import standards will be used for the one-year import, which has additional requirements for emissions and safety. This will keep foreign carmakers, especially those from China, who are not ready for the new certification system, at bay from one of the world's emerging auto markets.

But Ford Motor will have lots of rivals driven away because it has large manufacturing facilities in Russia and is well prepared for the new system. Currently Ford has 133 sales and service centers in 88 Russian cities and it aims to sell 200,000 vehicles in the country in 2008, up 17.6% over last year.

As export of complete vehicles has become a major channel for Chinese carmakers to enter the fast-growing Russian market, and Russia has been the largest destination market for China's auto exports, the upcoming implementation of Russia's new certification system for vehicle imports will certainly put Chinese carmakers at a disadvantage.

The major problems challenging China's vehicle exports to Russia include some uncertain details in Russia's new certification system, the rising costs of delivering vehicles to Russia for certification, and the shrinking recognition of China's certification by Russia's new policy.

However, Chinese carmakers remain philosophical about the dramatic change in the Russian certification system for vehicle imports.
martin_krpan said:
Russia's new certification to affect China's auto exports


This can be a good and a bad move at the same time to me.

Good is because it keeps the bad Chinese makers with the intention of simply making quick money out of Russia and prevent it from tarnishing the rep. Keeping the small fishes out.

Bad is because I think eventually only a few will be able to survive this. I believe Chery will be able too.
Russia's higher KD-parts tariff to hit China carmakers.

October 20, 2008 - The door for Chinese carmakers to export their vehicles to Russia is getting narrower. Shanghai Securities News reported on Sunday that the Russian government will start implementing a new policy on November 14 to levy a 15% tariff on auto-making knock-down (KD) parts as an imported vehicle body.

As many automakers in China export their products in the form of knock-down parts to Russia, this new policy will deal a heavy blow to the Chinese car companies. This tariff policy will be carried out for a nine-month trial period. At the 15% rate, up to 5,000 euros ($6,700) has to be paid as tariff on an imported car body.

An industry insider told the Chinese newspaper that this decision by the Russian government is targeted at some Chinese companies who have cashed in on the loopholes in Russian policies (such as tax-free special zones) and make unfairly huge profits in assembling the knock-down parts. The new policy will greatly increase the costs of assembling KD kits in Russia.

This is the second time this year that Russia has issued an import policy unfavorable to Chinese companies. In July, Russia implemented its revised imported auto certification system, increasing the check items of China-made auto imports to 55 from 15 and the certification validity period from one year to six months.

This year to date, the Russia sales of most Chinese automakers have dropped sharply. In the first eight months, there were nearly 1.92 million vehicles sold in Russia, up 28.2% year on year, but the sales of Chinese cars fall at a two-digit percentage. In the eight-month period, China's FAW Group only exported 1,405 vehicles to Russia, down 10%.

However, by exporting finished vehicles rather than KD parts for assembling to the Russian market, some Chinese automakers, such as Great Wall Motor and Geely Auto, can manage to meet the challenge posed by Russia's new tariff policy and fulfill their sales targets in this growing market.
^^ so why don't the Chinese makers just build factories in Russia then ?

What the Russians are doing is just as what China is doing, they just want people to build factories locally to boost local jobs and make the local plants source locally.
Importing cars is bad on an economy, it gives foreign companies equal footing to compete without actually building the cars there.

The only place it is useful is places in Africa where there is no local industry to compete with anyway.
Chinese auto sales down in Russia market

October 29, 2008

Shanghai, October 29 ( Chinese auto sales are declining in Russia though the emerging market still posts auto sales increase, said today, citing a report by a Russian automotive market research company.

The report said the first batch of Chinese vehicles into Russia, mainly pick-ups, sold 260 units in 2004. The later years have seen booming sales of Chinese vehicles, which sold 6,733 units in 2005, taking 1% share in Russia’s imported auto market, 23,000 units in 2006 with 2.3. % market share and up to 57,000 in 2007 with 3.6% share.

Since the beginning of 2008, Chinese auto sales in Russia have been falling, only selling 25,000 units for a 2.4% market share in the first half as the Russian government issued ever stricter regulations on imported vehicles. The newly-approved inspection rules restricted imported cars and increased the cost for Chinese automakers on exports. And the export certificate costs $150,000 on average.

The report also pointed out that Russia recently increased the tax to 15%, or at least 5,000 euros imposed on each imported vehicle, making Chinese semi-knock-down (SKD) vehicles in Russia profitless. Currently, only Chery Auto, China's largest national carmaker, has begun complete-knock-down (CKD) production in Russia, which is not affected by the high tax.
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Wow, why is that? poor sale or poor quality? But I don't think it's the latter.
kugmo said:
Wow, why is that? poor sale or poor quality? But I don't think it's the latter.
uh..did you read the whole thread ? it is because of the new tax barriers and a halt in factory production.
martin_krpan said:
Geely and Chery to retire from the Russian market?

source: China Car Times
To answer the question at the end of the article - Probably the Chinese manufacturers will lose most from the new regulations in Russia, since they will not be able to sell their death traps on wheels there any more. The Russians will win thousands of lives saved, which are otherwise lost on China's roads due to poor safety features from the likes of Geely and Chery who face pressures to sell as many as possible as cheap as possible in order to survive.
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