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Russian Manufacturers Beginning To Replace Chinese Vendors In Russian Market Supply Chains

Russian current SME demand for intermediary agents to work with counterparties from China is growing at a record pace and includes a whole range of services – from searching for manufacturers of goods in demand in Russia, their delivery to setting up payment processes. The popularity of intermediaries has begun to increase as Chinese banks have begun to limit transactions with Russian businesses. There is no shortage yet of such agents – supply is growing even faster than demand. But this trend does show signs of coming to an end.

From March 2023 to March 2024, the demand of Russian small and medium-sized businesses for the services of intermediaries helping to purchase goods in China, arrange their delivery and make mutual settlements with manufacturers increased by 97%, and the supply of such services – by 112%.

The most noticeable increase in demand is observed in Kazan (x 6.4), Krasnoyarsk (up 156%), Ufa (up by 128%), Rostov-on-Don (127%), Moscow – (96%) and St. Petersburg (by 92%) .

Requests for organizing cargo transportation from China have also increased. In the country as a whole, demand for the service increased by 20% year-on-year, but in individual cities it reached record levels, for example, in Rostov-on-Don (an increase of 212%), Omsk (by 174%) and Nizhny Novgorod (by 164%).

The demand of small and medium-sized businesses to work with counterparties from China fits into the general environment. According to Infoline-Analytics, trade turnover between Russia and China at the end of 2023 generally increased by 26.3%, to US$240.11 billion. China’s exports to Russia increased by 46.9%, to US$110.97 billion, while imports from Russia increased by 12.7%, to US$129.14 billion.

China accounts for a significant share of supplies of autos, consumer goods, electronics and components for Russian importers, states Mikhail Burmistrov, the General Director of Infoline-Analytics. The Russian offices of retailer Leroy Merlin notes that about 20% of imported goods in categories such as power tools, lighting, and garden equipment are made in China.

Nadezhda Vinogradova, head of seller research at Data Insight, believes that the growth in demand for intermediaries and delivery from China is influenced by an increase in the number of sellers on the largest marketplaces – and these are, as a rule, representatives of small and medium-sized businesses.

Yulia Shlenskaya, the president of customs broker KBT, connects this with the search for alternatives and analogues of European goods in Asian markets. According to Data Insight estimates, at the end of 2023, about 450,000 sellers were selling their goods on Wildberries and Ozon, and by the end of 2024 this is expected to reach 700,000.

Ozon, often known as “Russia’s Amazon” calculated that in 2023 their sellers delivered five times more orders from China and Turkiye to Russia Federation than in 2022, and their turnover tripled. The company adds that in 65% of cases, goods from these countries are purchased by residents of small Russian cities, for whom price is much more important than delivery time.

At the same time, problems arise when working with counterparties from China; for example, Chinese banks currently do not accept transfers in RMB Yuan from Russian bank accounts, according to Artem Vaskanyan, the Deputy General Director of NC Logistics. This, according to him, has aroused the interest of the same sellers working on marketplaces in intermediary services when working with manufacturers from China.

In the current situation, intermediaries have to look for alternative ways to transfer money, thereby increasing the cost of goods and services.

Yulia Shlenskaya adds that delays in payment by importers lead to pauses in delivery requests. Nevertheless, China remains one of the most accessible countries for searching and purchasing goods, and the possibility of ordering from there through intermediaries further simplifies business processes, Nadezhda Vinogradova believes. Leroy Merlin, however, believes that in the next two to three years the share of the same Chinese goods in the DIY segment will “rapidly decline due to import substitution programs of retailers.” Now the share of local goods in the Russian network already exceeds 70%. 

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