Status Quo of the Chinese Auto Parts Industry

With over 70% of the leading international auto-parts makers having ventured into the Chinese market, the homegrown counterparts have been forced to wake up to the harsh reality of growing competition in the domestic market, which is unusually rough going considering the often-reported near chaotic conditions in the domestic market, where intellectual property is rarely respected and copycatting is rampant.

Exports of Chinese Auto and Auto Parts

The exports of Chinese-made autos and auto chassis jumped 51.9% to 1.64 million units in 2006; while the exports of Chinese auto parts leapt 36.8% year-on-year to US$9.88 billion in the first 10 moths of 2007.

Chinese Auto Exports, 2004-2006
Year	2004	2005	2006
Export volume (10,000 units)	41	108	164
Average Selling Price (US$1)	1,909.4	1,755.9	2,147.2
Export Value (US$100 M.)	7.83	18.95	35.21
Source: National Bureau of Statistic of China

Shen Ning-wu, deputy secretary general of the China Association of Automobile Manufacturers, points out that if all goes well according to the officially-targeted plan of development, the output value of the Chinese auto-parts industry will likely total some US$175 billion by 2010, including US$65 billion in OEM (original equipment manufacturing) business and US$40 billion in export.

High Profit Margin

In contrast to the steadily declining profit margins in the auto industry, the Chinese auto-parts industry has managed to maintain comparatively higher counterparts, reaching 6% in 2005 as compared with 5% in the auto industry.

Attracted by the huge market potential, foreign players have flocked to China. Delphi, for instance, has invested over US$500 million to set up centers for R&D and training, 15 enterprises to generate sales topping some US$1 billion annually. Bosch has also done the same, pouring over US$600 million to set up 10 business offices, five trading firms, and 18 enterprises to generate some 1.4 billion euros in sales.

Despite its strong development potential, the Chinese auto-parts industry has been clouded by a number of adverse factors, including low technological level, low added- value in export items, over-reliance on serving the after-market segment, with its share of OEM business remaining relatively low. Generally to turn out OEM quality items calls for setting up relatively-advanced manufacturing facilities that have to be operated by systematic management, both of which have to be imported at enormous expense. Viewed differently, the Chinese auto parts makers may be able to, with current technology, facilities and management, turn out fenders for Buicks but they are a long way from building in-house tech-intensive parts, such as the electromagnetic shocks on Cadillacs or the transverse, composite rear leaf springs on Corvettes.

The next 10 years will be critical for the development of the Chinese auto-parts industry. Shen Ning-wu urges the auto-parts industry to upgrade products and enhance independence in terms of technological capability. Doing so would not only help to provide critical momentum to further develop the local auto industry, but also enhance its ability to become a major supplier to the global auto industry.