Will Chinese Cars Become the New Face of Russia’s Auto Industry?

The relaunch of a classic Soviet-era car, the Moskvich, by a state-owned company in November was celebrated by Moscow’s mayor as showing the resilience of Russia’s auto industry to Western sanctions. But the vehicles coming out of the Moskvich factory bear no resemblance to the boxy metallic models produced behind the Iron Curtain and instead show China’s growing sway over this vital sector of the Russian economy.

The revival of the Moskvich is yet to be a mass production plant, with fewer than 20,000 cars expected to be made this year at the facility near Moscow that the city took from French carmaker Renault (RENA.PA) last year for just one rouble. But it shows that, even as foreign companies are leaving the country, there is still a demand for locally produced vehicles, which will be cheaper and more reliable than imported ones.

In the years leading up to the collapse of the Soviet Union, Russian authorities encouraged Western carmakers to build factories in the country. They subsidized those who performed operations like stamping, welding, and painting locally. With sales of new cars down by more than half since the start of the year and exports of key components to the West slashed by Western sanctions, the Russian government is turning to Chinese companies for help.

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In May, the city’s mayor, Sergei Sobyanin, said the “long and glorious history of the Russian car industry” had to be revived. Sobyanin promised the launch of the Moskvich 3 would mark the beginning of this revival. The new car is an urban crossover with a gas engine and a modern Chinese design that hardly resembles its Soviet-era counterpart.

Sobyanin did not disclose the name of the Chinese company working with the Moskvich factory, but a source close to the project told Reuters that it is JAC Motors. JAC is known for making various electric vehicles and traditional gasoline-powered models.

Even though sales of cars in Russia are down by more than half this year, Chinese manufacturers have found ways to tap into this market with the help of locally-produced versions of their models. According to data shared with Reuters, new car sales of Chinese brands such as Great Wall Motor and Chery have soared in Russia since the start of this year and now account for almost a third of the market.

The government’s efforts to highlight the importance of domestic products have met with some resistance from the central bank, complaining that the Made in Russia label risks losing its credibility abroad as more imported cars bear the logo. However, the industry ministry said it was receptive to proposals from the bank on improving the system of marking products. It is now implementing a new, more transparent version of the logo that will be applied to cars assembled in Russia but based on designs from abroad.