The Russia Dilemma: How China’s “Internal Involution” is Spilling Overseas and Testing the Limits of its Auto Export Model

The Chinese auto market is defined by nèijuǎn (内卷)—a brutal, zero-sum internal competition. This hyper-competitive environment, combined with domestic market saturation and a massive overcapacity problem (the “capacity games”), has created a powerful incentive for Chinese OEMs to aggressively expand overseas.

For a time, Russia seemed like the perfect blitzkrieg success story. Following the mass exodus of Western automakers after the 2022 conflict, China moved in. But the recent, sharp downturn in sales and accusations of “dumping” from local Russian industry players reveal a new and pressing dilemma for China’s automotive export strategy.

From my perspective here in China, the situation in Russia is more than just a regional slump. It’s a critical stress test, revealing what happens when the domestic nèijuǎn spills across borders and confronts the hard realities of global markets.

1. The “Blitzkrieg”: How China Conquered the Russian Market

After Western brands fled the Russian market post-2022, they left a massive vacuum. Chinese automakers filled it with breathtaking speed.

Their market share in Russia skyrocketed from just 7% in 2021 to over 50% in 2023, and an astonishing 60% in 2024. Brands already present, like Haval, Chery, and Geely, were joined by a flood of others, including Changan, Xingtu, and JAC.

This rapid success was driven by a few key factors:

1. A Captive Market: Russian consumers were left with few other choices.

2. Supply Chain Resilience: Unlike multinational corporations tied up in Western corporate directives, Chinese brands could quickly pivot their production and logistics to keep vehicles flowing into Russia.

3. Cost-Effectiveness: With mid- to high-end Western models gone, the practical and affordable SUVs and sedans from China perfectly matched the purchasing power of the Russian consumer.

2. The Headwinds: “The Crossroads After the Hurricane”

By 2025, the hyper-growth phase came to an abrupt halt. In the first quarter of the year, China’s vehicle exports to Russia plummeted by 39% year-over-year, with the decline continuing. The Russian auto industry is now accusing Chinese firms of “profitless dumping” and calling for government intervention.

This reversal is due to a complex mix of factors. Geopolitical tensions and sanctions continue to strain the Russian economy, leading to inflation and shrinking consumer purchasing power. The overall market pie is getting smaller.

More importantly, the Russian government is now actively protecting its domestic industry.

• Import tariffs have been hiked by 80%, and recycling taxes by 85%.

• The benchmark interest rate has soared to 21%, choking off consumer spending.

• The government is now demanding technology transfer and higher localization rates for parts, while actively supporting domestic brands like LADA.

These protectionist measures have dramatically increased operating costs and raised barriers to entry for Chinese automakers. After two years of explosive growth, the market is now saturated, and the easy gains are over.

3. The Dilemma: Exporting Nèijuǎn and the Test of Sustainability

The accusations of “dumping” in Russia are a clear sign that the nèijuǎn phenomenon from China’s domestic market is now being exported.

At home, Chinese OEMs are locked in a brutal price war, often accepting profitless sales just to gain market share. When this strategy is replicated overseas, it inevitably creates friction with local industries and, ultimately, harms the financial health of the Chinese companies themselves. With emerging OEMs like NIO already posting massive cumulative losses, a “zero-profit” strategy in foreign markets is simply not sustainable.

The Russian market is a stark lesson for Chinese automakers: growth that relies on filling a temporary vacuum is finite. A strategy based purely on price competitiveness and market opportunism cannot guarantee long-term success. Supply chain constraints, policy barriers, and market saturation are now creating a long winter that will test the resilience and wisdom of these Chinese brands.

An Insider’s Conclusion: The Long War Begins

Moving forward, Chinese automakers must prepare for a “long war” in overseas markets, not just a “blitzkrieg.” This will require a fundamental shift in strategy:

• Deep Localization: Increasing the localization rate of parts and truly integrating with the local industrial ecosystem.

• Brand and Product Elevation: Moving beyond simple value propositions to enhance brand value, service quality, and product differentiation.

• True “Hyper-Localization”: Building factories overseas cannot just be about moving production. It must be about embedding the company into the pulse of the local market.

The case of Russia is a crucial preview of the complex and realistic challenges that the Chinese auto industry will face on its path to global leadership. The blitzkrieg phase is over; the long, strategic war for sustainable growth has just begun.