China is the main route for foreign cars to enter Russia, avoiding Ukraine's war sanctions

According to five people who are involved in the trade, registration data and interviews revealed that tens of thousands cars were being exported to Russia from China under gray-market schemes. These schemes often bypass Western and Asian government sanctions and the commitments made by automakers to leave the Russian market.

In response to Russia's invasion of Ukraine in?2022, the sanctions and pledges were made. The trade of these cars, from Toyotas to Mazdas and German luxury models, continues to thrive partly because informal networks allow Russian dealers to order the vehicles through Chinese intermediaries. This is shown by interviews and data collected by Russian research firm Autostat.

According to data and sources, the majority of vehicles are either made in China (where many international brands work with local partners) or they are shipped through China after being manufactured somewhere else. The number of zero-mileage used vehicles is increasing. These are new cars that dealers and traders register as "sold in China" before reclassifying them as used. This practice was highlighted last year as a sign of China's hypercompetitive and highly subsidised car market. It allows automakers and dealers inflate their sales figures, collect subsidies, and export surplus cars. Zhang Ai Jun is a former car trader in Sichuan who said that traders moving European, Japanese, and South Korean brands from China to Russia would classify the cars as "used" to avoid having to obtain automaker approval to sell them to Russia. She said, "This is a way to export more easily." In China, zero-mileage cars are heavily discounted. In Russia, however, these cars are sold at prices that are similar to those of never-registered brand new vehicles, according to documents and dealer quotes.

It is the first news outlet to report on the Autostat data. This includes China becoming the main conduit for foreign cars to enter Russia, and automakers avoiding Russia sales restrictions by classifying their new vehicles as used. Dmitry Zazulin is the sales director of Panavto-Zapad in Moscow. He said that many customers are interested in buying and driving cars from Western brands such as Mercedes. "At the moment, however, we are only able to bring them into the country through parallel channels," said Dmitry Zazulin, sales director at Panavto-Zapad in Moscow.

Mercedes-Benz said it prohibits sales to Russia. BMW, Volkswagen, and other automakers in regions that impose sanctions also stated they are working to prevent unauthorised exports. This includes through dealer training and contractual clauses. Mercedes, BMW and other automakers from regions imposing sanctions said they prohibit sales to Russia and are doing their best to prevent unauthorized exports. This includes through training and contractual clauses with dealers.

BMW has instructed its China retail operation "to oppose any possible vehicle exports to Russia." It added that if cars do enter Russia, they will be gray-market imports and "this is outside of our spheres of influence – as well as against our wishes."

The Russian dealer who only wanted to be identified as Vladimir said that his Vladivostok dealership does not stock restricted foreign vehicles, but instead buys them from Chinese traders one by one in order to fulfill customer orders. He said that there are many middlemen. This dealer knows this one, that dealer knows that other one and so on.

DATA REVEALS SCALE of TRADE

Autostat's data shows that sales are in the thousands. Autostat's data shows that imports from China are increasing in number and represent a larger share of vehicles imported from Western or Japanese brands registered in Russia.

Data shows that the number of these vehicles produced in China has doubled since 2023. Autostat reports that they now make up nearly half of all the vehicles made in countries that impose sanctions and sold in Russia by 2025. Since the Russian invasion of Ukraine in early 2022 more than 700,000.000 vehicles have been sold in Russia by all these foreign brands.

Autostat data shows that Russians purchased more Toyotas than any other foreign brand, except for Chinese. The automaker, however, said that it would stop sending new cars to Russia in 2022. "Toyota doesn't export new vehicles into Russia," said the company without addressing Autostat figures. Mazda, who also had a significant number of sales, made the same statement and said that any Mazdas that were sold in Russia, "were resold by third parties outside Mazda's control."

Sebastiaan Bennink is a sanctions specialist at the European law firm Bennink Dunin-Wasowicz. He said that restricted products often find their way into Russia, even though industry players try to stop them.

Bennink says that there are so many ways of skirting sanctions, it is "almost impossible" to stop certain cars from reaching Russia.

Autostat's statistics, which show that China is the major route for vehicles to reach Russia, could not determine the other routes.

According to the German economy ministry, customs authorities investigate violations of sanctions regularly and work with counterparts from other EU countries in order to implement measures.

The Japanese Ministry of Economy, Trade and Industry has said that automakers and exporters are bound to its sanctions rules. However, it declined to comment on trade of Japanese vehicles between China and Russia.

The South Korean trade ministry stated that it has taken steps to stop the circumvention of export control and has cracked down on indirect car exports to Russia. China's Commerce Ministry and Russia's Industry and Trade ministry did not respond to requests for comments. Both countries have stated that they oppose unilateral sanction and consider them illegal.

RUSSIA SALE OF FOREIGN BRAND, CHINA MADE CARS SOAR

All of the major automotive sanctioning bodies, including the European Union, United States, South Korea, and Japan, have imposed similar sanctions. The sanctions generally prohibit the sale of cars above a certain cost or with larger engines in Russia, as well as?all EVs' and hybrids. These automakers also committed to ending or severely restricting their Russia business.

Autostat data show that these efforts have reduced the Russian sales of vehicles in regions subject to sanctions from over one million in 2020 to just one-eighth.

The data show that sales of German and Japanese-made cars made in China are on the rise. Some industry analysts attribute this trend to an increase in exports for zero-mileage cars.

Some industry data sets do not include these vehicles; GlobalData, for example, did not report any official new-car purchases of German brands this year in Russia. Autostat's data captures the sales, because it is based on registrations of new cars in Russia. Imported vehicles with zero miles are treated as new, regardless of whether or not they were registered in China.

Autostat's data shows that in Russia, nearly 30,000 Toyotas were bought last year. Nearly 24,000 were manufactured in China. Mazda sold nearly 7,000 cars during the same time period, with almost all of them being made in China. According to two China auto-retailers, Toyota hybrids are the most popular Japanese brands in Russia.

GERMAN LUXURY SUVS SLIP THROUGH GRAY-MARKET CHANNELS

German cars are also highly prized. Autostat data showed that nearly 47,000 new BMWs, Mercedes, Volkswagen Group vehicles including Audi, Porsche, and Skoda were registered in Russia during the last year.

The data shows that more than 20,000 vehicles were made in China. According to industry analysts and a person involved in the importation of vehicles into Russia, many passed through China en route to Russia. Vladimir, a Russian car dealer, stated that most foreign cars are imported via China, regardless of their origin.

According to Felipe Munoz of the Car Industry Analysis platform, the Mercedes G-class is a popular model among Russian elites. This boxy off-road car can be purchased for 120,000 Euros, which is about $142,700. It's only made in Austria.

The shipping documents of dozens of German luxury SUVs imported from China to Russia, including the Mercedes GLC 300 or the BMW X1 xDrive25 were also reviewed.

Munoz stated that "given the growth in trade between Russia, China and Germany in recent years, it's obvious to conclude many of these cars imported from Germany end in Russia."

(source: Reuters)