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Sanctions-hit Russia turned a blind eye to the huge number of cheap Chinese cars being imported from Kyrgyzstan last year. No longer.

There will not have been much joking around in Kyrgyzstan on April 1.

Since Russia embarked on its full-scale invasion of Ukraine in 2022, precipitating a mass pullout of Western businesses, re-exporters in Kyrgyzstan have been making bank.

No sector has proven more profitable than the car market.

With Russian motorists unable to buy Western auto brands, they looked to China. Official dealerships sourced their cars directly from China, but there was a cheaper option: Kyrgyzstan.

Although Kyrgyzstan and Russia are part of a customs union, the EAEU, they tax car imports differently. In Kyrgyzstan, they consider the price tag shown on sales agreements and then levy a percentage of that figure. In Russia, customs services look at the size of the car’s engine when calculating the amount owed by an importer. The Kyrgyz method incurs far lower costs. 

Ruslan Tynaliyev,  the head of the customs and tariff policy department at the Kyrgyz Economy Ministry, explained this in laudably lucid fashion in an interview in February. 

“So let’s say, for example, if we take a Geely Monjaro [SUV]. We clear that through customs for $3,400. In the Russian Federation, under their customs clearance system, it comes out at 10,000 euros,” he said, hopping from one foreign currency to another.

The result is that enterprising Kyrgyz businesspeople have been buying Chinese cars at a dizzying rate and then quickly selling them to Russians. The car haulers headed directly from the Chinese border to Kyrgyzstan’s crossings into Kazakhstan, and then onward to Russia, without their load ever touching the ground. 

The figures give a sense of the bonanza. 

In 2022, Kyrgyzstan imported almost just 1,800 cars from China. Last year, it was more than 79,000. South Korea was another popular place for Kyrgyz traders to get cars. More than 50,000 units arrived from there — a fivefold increase compared to 2022.

The data on quite how many of the cars were being forwarded to Russia are fuzzy, but by all appearances it was most of them.

Blind Eye

For a while, the Russian authorities were happy to tolerate this free-for-all. It proved, after all, that Western efforts to isolate their economy and deprive consumers of brand-new things would fail in the face of commercial ingenuity. But the holiday had to end sooner or later.

That date has now arrived. Under rules coming into effect on April 1, cars imported into Russia from other Eurasian Economic Union (EAEU) member nations are liable to incur an additional so-called recycling fee. It will no longer, as a result, be cheaper to bring in a car into Russia from Kyrgyzstan, Kazakhstan or any other EAEU country. 

“This approach will avoid situations where citizens and companies importing cars cleared by customs in EAEU countries get an unjustified advantage as compared to car owners who do this in Russia and pay taxes and fees … in full,” the Russian government announced in February. 

Other sanctions-triggered loopholes are closing this month.

In another sanctions-dilution measure pushed by Russia in 2022, the EAEU elected to raise the threshold at which items bought over online commerce platforms should be slapped with 15 percent duties from 200 euros to 1,000 euros. This was clearly intended to accommodate people after the latest mobile phones and other similarly mail-friendly tech.

Shoppers hopeful the deadline might be rolled over continued buying merchandise until just a few days ago. Now they are scrambling to cancel their orders. 

Plan B

Kyrgyzstan has a Plan B, though. 

In February, President Sadyr Japarov oversaw the start to construction work on a vehicle factory that his administration has said will turn out 80,000 units per year. Japarov touts this as a victory for the “Made in Kyrgyzstan” agenda.

But the fact that the $115 million project is being completed together with a Chinese company suggests something else might be happening. No details are yet available on who will produce cars at the Kyrgyz factory, which is scheduled to start production as soon as August, but there is a good chance it will be a Chinese automaker looking to slip under the EAEU tariff net.

Work on yet another car assembly plant in Kyrgyzstan began in May 2023. That factory is to be operated as a joint venture between Uzbek government-controlled carmaker UzAuto and a Kyrgyz company called DT Tekhnik. The Kyrgyz plant will assemble cars out of large, prefabricated modules likely produced in Uzbekistan, which is not in the EAEU. Imported components are taxed at lower rates than fully constructed vehicles, which means that yet again, there will be scope for Kyrgyz car traders to sell Russians cheaper models.