A recent plan made by Russian authorities has smashed expansion hopes for Chinese automakers in the Russian market, Shanghai Securities News reported on Wednesday.
The report said Russia's Ministry of Industry and Energy had decided to temporarily suspend approval of any projects to set up Chinese vehicle assembling factories in the territory, once wide open to Chinese automakers.
Four projects worth an aggregate US$380 million by five Chinese automakers will bear the brunt of the new decision. The five are Geely, Great Wall Motor, Zhongxing Automotive, Lifan Group, and Beijing Auto Holdings. Once operational, their projects would have a combined annual output of 230,000 units.
Russia's Ministry of Economic Development and Trade reviewed the four projects, and deals were originally scheduled to be inked before this fall, but now it seems like an impossible mission. Although the Russian ministries haven't given an absolute no to the four projects, they are expected to delay the schedule.
While the Chinese companies are depressed over the setback, their peers from other countries are proceeding with projects smoothly.
Japan's Nissan recently laid the foundation for a new factory in St. Petersburg, which will cost US$200 million with an expected annual output of 50,000 cars. Everything is also going well for Volkswagen. The German company signed an agreement with the Russian government in 2006 to invest US$5 billion in establishing a car assembling plant in Kaluga, 120 kilometers south of Moscow. Recently, the two parties discussed details about the progress of the new plant and studied the feasibility of setting up a spare parts factory in Russia.
This sharp contrast, market analysts say, is a consequence of more and more global auto giants going to set up operations in Russia. Once eager for such investment, Russia is now becoming picky in selecting its partners, which explains why Chinese automakers have been tactfully declined.
Once their localization plans in Russia abortive, Chinese automakers will be greatly affected in terms of potential overseas profits. They used to export whole cars to Russia, which carries a huge cost.
"In Russia, they charge the import tax based on emission volumes. For a 2.0-emission car, they charge US$4,000. This, plus over US$2,000 in transportation costs, will greatly eat into the profits of Chinese auto exporters," said Pang Jinzhu, general manager of Great Wall Motors' sales department in Russia.
"Only localized production can help lower the cost," he said.
(China.org.cn by Yuan Fang, July 13, 2007)
