Russia slams the door on Chinese car factories

Chinese carmakers

Nyet
Oct 4th 2007 | HONG KONG
From The Economist print edition



THIS week saw two curious announcements concerning Russian cars. First, China's Xinhua news agency reported that Russia's Economic Development and Trade Commission had issued a decree forbidding foreign carmakers from building new plants. The next day Italy's Fiat elaborated plans to do just that, saying it would make 60,000 cars a year at a new factory in the Volga region in partnership with Severstal Auto, a Russian firm. The “decree”, it appears, applies only to manufacturers from China.

Seven Chinese car companies have so far applied for licences in Russia but only one of them, Chery Automobile, has been granted approval. Yet all their big American, European, Japanese and South Korean rivals have got the go-ahead; several are already making cars in Russia. Now there are reports that Russian carmakers are lobbying for Chery's licence to be revoked.

Another Chinese firm, Great Wall, first declared its intention to invest $40m in a plant in the region of Tatarstan 18 months ago. It says it remains in negotiations with the Russian authorities. But according to Xinhua, the decree will force it and the five other Chinese applicants to revisit their plans for Russia.

Part of the explanation may be doubts about the safety of Chinese cars. A video of China's best-selling car in Russia, the $9,000 Chery Amulet, collapsing as if made from cardboard when crash-tested by a Russian magazine has become a favourite on YouTube. Chinese cars have also performed poorly in German safety tests.

But Russia's rebuff may stem as much from Chinese carmakers' successes as from their failings. Until 2005 there were no exports of Chinese cars to Russia at all. This year, 120,000 vehicles are expected to arrive. In a country where 2.1m vehicles were sold last year, the Chinese manufacturers' volumes are still small. But, according to official figures, Chery's sales grew by 580% in the first eight months of 2007, to 24,000. Other foreign brands grew by an average 66%.

“Russia is one of the most promising markets for Great Wall,” Shang Yugui, a spokesman for the company, said this week. Unlike Western carmakers, Chinese ones compete head-on with Russia's indigenous manufacturers on price. That makes them really dangerous.