Huachen to export Zhonghua model to Russia
Huachen Automotive Group, the parent of Hong Kong-listed Brilliance China Automotive Holdings, aims to export 100,000 Zhonghua cars to Russia in co-operation with a Russian partner.
In order to preserve tax benefits for imported components associated with selling foreign cars, Huachen will provide parts designated as 'knocked-down kits' to partner Irito-Invest for vehicle assembly.
For the Russian market, foreign carmakers gain tax benefits by providing completely knocked-down kits - parts only for assembly - or in semi-knocked-down form. The latter applies to arrangements whereby only some of the parts are imported.
These arrangements are used to avoid high import taxes or to receive tax preferences for providing employment.
Russia is the second-largest export market for Huachen. The company last year announced the export of 158,000 Zhonghua cars to Germany, its first move to tap the western European market.
Huachen is the first mainland carmaker to announce an investment plan in Russia after reports had indicated that the government would subject foreign carmakers to tighter regulations on their plans for Russian plants.
Lawrence Ang Siu-lun, an executive director of Geely Automobile Holdings, which is also planning to invest in Russia, said the problems could be avoided by the adoption of different business models, and knocked-down kits was such one arrangement.
'Carmakers always bear higher risks building a plant in foreign markets,' Mr Ang said.
According to global consultancy JD Power, mainland carmakers are required to sign an industrial assembly agreement with the Russian government that commits them to making 25,000 cars a year before they gain the right build a manufacturing plant.
Foreign carmakers also must agree to reduce the proportion of imported components by 33 per cent within seven years in order to secure reduced duties on components and other privileges
The new policies came after President Vladimir Putin replaced his long-serving economic development and trade minister last month.
Mr Putin also made deep cuts to the budget of the Economic Development and Trade Ministry, limiting the agency's ability to fund tax benefits.