Chinese car exports to Russia have slowed sharply this year, after a period of rapid growth, as Russia moves to bolster domestic production by hiking taxes on imported vehicles and introducing other trade protectionist measures.

The number of Chinese cars exported to Russia plummeted 49 percent in January and February from the same period a year earlier to 57,592 units, according to data from the China Passenger Car Association.

This is a big turnaround from 2023 when exports soared five-and-a-half-fold year on year to 910,000 units. And in 2024 there was a 27 percent jump to 1.16 million units, expanding China’s market share in Russia to 60 percent.

Since April last year, Russia has required full payment of tariffs, value-added taxes and consumption taxes for vehicles that are shipped from China through Central Asian countries before they enter Russia.

The country also announced that, starting Oct. 1, the scrapping, or 'recycling,' tax on imported vehicles will soar by between 70 percent and 85 percent, with further increases of between 10 percent and 20 percent each year until 2030.

Russia’s stricter import policies have made dealers hesitant to hoard vehicles, said Wang Xiangyu, founder of EV New Energy Technology. The market is also saturated due to earlier overstocking.

Closing off grey import routes through Central Asia and raising taxes on imported cars reflect Russia’s push to develop its own vehicle industry, said Cui Dongshu, secretary-general of the China Passenger Car Association. Chinese automakers must localize production to survive, as Russia is using structural tax tools to steer the market, he added.

Chinese vehicle manufacturers in Russia face two main risks, namely, macroeconomic instability and uncertainties in industrial policies, said Cui. The former directly affects demand for cars and exposes businesses to risks in exchange rate fluctuations. The other is due to the fact that Russia’s industrial policies are showing signs of trade protectionism.

Historically, Russia would sideline Chinese investments and prioritize Western projects, Cui said. Russia’s automotive sector now suffers from weak competitiveness and supply shortages. In view of this, Chinese companies should carefully assess evolving market conditions to mitigate potential policy risks, he added.

In the past, Chinese automakers could earn a gross profit of between USD3,000 and USD5,000 per car, but now this has been squeezed to just USD500 to USD1,000 per vehicle, and they are even losing money on some models, Yicai learned from industry insiders.

Collecting payments has also become a major hurdle. "We have even explored bartering with timber or asphalt," said one dealer. And exchange rate volatility further complicates matters.

Car sales in Russia plunged 24 percent in February from the year before to 79,941 units, according to statistics from the Association of European Businesses. With the exception of February 2023, this is a 10-year low.

Sales this year should tumble 15 percent year on year to 1.4 million autos, dragged down by factors such as higher scrapping taxes, rising costs, fewer loans and changes in the tax system, it said.