The findings of the study carried out by Sergei Tsukhlo , Head of the Business Surveys Department of the Gaidar Institute have revealed that Russian manufacturers view Chinese suppliers as the most popular channel for substitution of western equipment. The findings have been published by the RBK.

In January 2023, experts of the Gaidar Institute carried out a survey of managers of Russian industrial enterprises to find out how they substituted sanctioned imports. The respondents were asked questions concerning the following three categories of goods: equipment, spare parts and accessory components. The survey covered about 1,000 businesses.  

The survey has revealed that over a half of Russian companies bought equipment and spare parts in China in 2022. But Russian manufacturers have succeeded in producing accessory parts (import substitution has turned out to be more effective in this field). Apart from purchases from Chinese and Russian manufacturers, the two leading channels of import substitution, businesses named also other ways of substituting sanctioned goods. Some managed to ensure supplies from other friendly countries from Turkey to North Korea, others gave up using the disappeared imported goods in their production and still others said that they still received sanctioned imports.

Notably, 67% of businesses say that they have switched over to the equipment from China. Though lagging far behind, domestic manufacturers are rated the second among import substitution channels (39% of the respondents have started using their products). “Analogs from other countries” are rated the third (23% of the respondents). This group does not include countries for which individual types of answers are provided for: in particular, 21% of the respondents have found analogs from their partners in the EAEU (Armenia, Belarus, Kazakhstan and Kirgizia) and 17% of the respondents in Turkey. It is noteworthy that 15% of Russian businesses report that they still receive sanctioned machinery and equipment. Among supply channels, there is an option of importing relevant goods from India, Iran, Vietnam, Egypt and North Korea (12%).

Though the leading positions on the market of spare parts are held by Chinese manufacturers (63% of Russian companies have applied to them), domestic producers do not lag far behind China in this respect (46% of the respondents have used Russian products). Further, 24% of Russian companies say they have switched over to “analogs from other countries”, while 22% of businesses declare that they still receive sanctioned imports.

In terms of replacement of imported analogs with domestic ones, import substitution has proved efficient as regards accessory components (the Gaidar Institute attributes raw materials, expendables and semi-manufactured goods to this category).   Notably, 54% of businesses declare that they have replaced the disappeared imports with Russian analogs. Chinese suppliers lag behind by just 2 p.p. As specified in the survey materials, 23% of Russian businesses still receive “banned” accessory components.

The fact that Russian companies keep receiving “sanctioned” equipment and components does not mean that they circumvent the regimes of Western sanctions. Specifically, EU sanctions envisage transition periods within which import supplies are allowed under the existing contracts. Further, the EU introduced exceptions for supplies meant, for example, for medical and humanitarian purposes. Also, any EU country may on an exceptional basis permit supplies of sanctioned goods to Russia. Russian subsidiaries of foreign companies may receive sanctioned goods, too. It is noteworthy that the mechanism of “parallel imports” is in action, as well.

Sergei Tsukhlo notes that by contrast with a situation with equipment and spare parts Russian companies demonstrate the highest level of non-reliance on “sanctioned” goods in terms of accessory components. It is worth mentioning that 20% of Russian businesses did not use previously foreign components, while in case of equipment and spare parts only 11% of enterprises could manage without the currently “toxic” imports.