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China's auto parts policy adjustment opportunities and problems coexist
China's Auto Parts Industry: Policy Adjustments and Competitive Challenges
Despite the reduction of import tariffs on auto parts following China’s accession to the WTO, many feared that the domestic auto industry would face a crisis. However, in reality, the Chinese auto parts sector has not only survived but also shown resilience. While the auto parts industry may not be as volatile as the整车 (whole vehicle) industry, it continues to present both opportunities and challenges.
China’s auto parts industry is now entering a new phase of growth. The increasing preference from international buyers for Chinese-made components, along with the national "Eleventh Five-Year Plan" aimed at boosting the competitiveness of the sector, has opened up significant development prospects. Yet, rising raw material costs, mounting pressure on production costs, and fierce competition from global multinational corporations make it increasingly difficult for local companies to remain viable.
According to data, China is already the fifth-largest supplier of auto parts to the U.S. During the Eleventh Five-Year Plan period, the spare parts market is expected to grow by 35% annually. By 2010, exports of auto parts are projected to reach $40 billion. Industry sources note that over 70% of major global component manufacturers have established operations in China, presenting intense challenges to domestic firms.
Many local parts companies are being marginalized, with foreign-controlled or wholly-owned enterprises gaining more dominance. For example, Tangshan Aisin Gear transitioned from a Sino-Japanese joint venture to a Japanese-owned company. Similarly, Guangzhou Toyota Engine holds 70% of shares, while Volkswagen FAW Engine owns 60%, and other foreign firms have also taken large stakes in Chinese auto parts companies.
As global automotive giants like Bosch, Delphi, and Visteon expand their presence in China, they bring advanced technology and management practices, making it harder for local suppliers to gain access to the vehicle manufacturing market. These companies strictly control technology transfers, leading to a growing trend of marginalization among Chinese firms in terms of investment, technology, and market access.
The global auto parts industry is undergoing a major restructuring. With rising labor costs in Europe and the U.S., and the maturing of technologies in Japan and South Korea, China’s cost advantages and growing technical capabilities are becoming more attractive. This shift presents a golden opportunity for Chinese suppliers to participate in the global supply chain.
Experts suggest that as multinational corporations look to reduce costs, China is emerging as a key destination for sourcing auto parts. By 2010, global auto trade is expected to reach $2 trillion, with multinationals planning to purchase $50 billion worth of parts from low-cost countries like China by 2007. This development opens up new markets and opportunities for Chinese auto parts companies.
To improve competitiveness, the National Development and Reform Commission has set the enhancement of the auto parts industry as a key goal during the Eleventh Five-Year Plan. Currently, R&D investment in China’s auto parts sector accounts for only 1.4% of sales revenue—far below the 5% average of multinational companies. This gap limits innovation and technological advancement, which are essential for building strong, independent brands.
Experts emphasize the need for Chinese auto parts companies to develop their own brands, scale up operations, and support a wide range of products. Close collaboration with整车 (whole vehicle) manufacturers is also critical for improving quality, cost efficiency, and technological standards.
In addition, the industry must focus on energy-saving, environmental protection, and safety technologies, aiming to reach international standards. This will enable Chinese companies to compete more effectively on the global stage.
Another important trend is the entry of IT companies into the auto parts sector. Companies like Lenovo, Microsoft, and Motorola are showing interest in integrating technology into automotive systems. As electronic systems become a larger portion of car costs, IT firms are positioning themselves to influence future standards and drive innovation in automotive electronics.
Finally, small foreign companies are emerging as new competitors. Unlike before, when only large multinational firms entered the Chinese market, smaller overseas players are now seeking to capture a share of the booming auto parts industry. These companies often operate in collaborative, efficient structures, making them a formidable challenge for local firms.
Overall, while the Chinese auto parts industry faces numerous challenges, it also stands at a pivotal moment of growth and transformation. With strategic policy support, increased R&D investment, and greater international cooperation, the sector is well-positioned to strengthen its global presence.