Shaanxi Automobile steering into Russian and Central Asian markets

Vehicle manufacturer's expansion aims to meet growing demand and keep pace with European competitors

Shaanxi Automobile Holding Group, the largest truck manufacturer in northwestern China, plans to build more spare-parts warehouses, assembly lines and service centers in Russia and Central Asian countries in the next three years to keep pace with more established competitors in the region.

With medium-duty trucks assembled in Kazakhstan, lengthened-chassis delivered to Russia and heavy-duty trucks sold to Uzbekistan and Tajikistan, the Xi'an-based company is building a solid reputation for competitively priced and easily serviceable products, which include heavy military off-road vehicles, heavy and light trucks, large and medium-sized passenger cars, minivans, engines and spare parts.

Yuan Hongming, general manager of Shaanxi Automobile, said continued foreign and domestic investment in infrastructure, energy and trade development will be vital to supporting economic growth in Russia and Central Asia over the next decade.

The Beijing-based China Chamber of International Commerce said that truck sales in Russia and Central Asia accounted for 17 percent of global sales in 2013, driven by an infrastructure boom and the surging consumer goods and logistics demand of more than 210 million people in these two markets, which offer rich opportunities for Chinese and foreign truck manufacturers.

Yuan said it was not easy to gain a foot-hold in these markets where logistical issues such as ensuring spare parts reached customers on time and the number of after-sales branches posed difficulties in the early days.

Eager to establish a reputable brand image in a new market, the company initially shipped spare parts by high-cost air cargo and invested heavily to establish regional service centers in major cities such as Nizhny Novgorod, Samara and Vladivostok in Russia and Almaty in Kazakhstan.

"Because these trading partners enjoy good relations with China, and local businesses and people trust Chinese partners, we face fewer trade barriers in these markets," Yuan said.

After exporting 6,416 trucks to the Russian and Central Asian markets in 2013, Shaanxi Automobile decided to build a large spare-parts warehouse and two logistics centers in Russia to enhance its after-sales ability. Construction is due to start in October.

The company is also planning to expand its capacity and number of employees at its assembly plant in Kazakhstan in the next three years to avoid having to pay duty up to 30 percent in the Commonwealth of Independent States free trade area.

Shaanxi Automobile and its 20 subsidiary companies produced 100,000 trucks for both domestic and global markets in 2013. Its overseas marketing network covers 60 countries, with 260 service branches and maintenance centers.

Wang Gang, deputy general manager of Shaanxi Heavy Duty Automobile Co, a unit of Shaanxi Automobile, said the main competitors in the Russian and Central Asian markets are European truck makers such as Sweden's Scania AB and Volvo Car Group, Germany's Mercedes-Benz and MAN AG of Germany.Many of these European trucks are secondhand and widely used as vehicles for construction work and logistics services.

"The majority of Central Asian nations are still in the early stages of economic development, and the strategic sectors of infrastructure services, transport and logistics companies are under state control, which means when it comes to buying trucks, the government is one of the biggest customers," said Wang.

The government of Kazakhstan has recently made changes to importing regulations to try to reduce the country's dependence on imported secondhand trucks and encourage companies to buy new ones to help protect the environment and reduce wear and tear on roads.

The Kazakh transportation authorities said only trucks first registered eight years ago can now be imported after inspection.

Wang said the registration period may be reduced to five years in 2015 and it is possible that imports will eventually be banned, presenting Chinese brands with a clear advantage.

Many local governments and logistics companies in Russia, Uzbekistan and Tajikistan have been keen to seek solutions and tackle problems of air pollution caused by heavy trucks.

Eager to meet market demand, Shaanxi Automobile started to design and produce compressed natural gas, liquefied natural gas, electrical and other new-energy heavy-duty trucks.

"Because China signed a big-ticket contract with Russia earlier this year to further ensure its natural gas supply, we also wish to sell more tanker trucks that can carry liquid petroleum gas to serve the transportation needs between two sides, as well as helping energy companies to build natural gas storage stations to assist our truck business," said Wang.

After nine years of negotiations, China, Russia and Kazakhstan have reached an agreement to create conditions for an Asia-Europe transport corridor between Lianyungang in East China's Jiangsu province and St Petersburg in northwestern Russia to stimulate trade and remove logistics drawbacks.

The new road will be 8,445 kilometers long, with 2,233 km in Russia, 2,787 km in Kazakhstan and 3,425 km in China, and will be completed in 2017, according to China's Ministry of Foreign Affairs.

"The truck market is usually seen as a barometer of the macroeconomy, since it reflects the scale of commodity flow, regional trade, as well as infrastructure development," said Zhao Ying, a researcher at the institute of industrial economics at the Chinese Academy of Social Sciences in Beijing.