Worldwide Downturn Seen as Time to Upgrade for Chinese Auto-parts Makers

While the auto parts sector in China, after years of rapid development alongside the burgeoning auto market at home, has gradually cultivated a number of established firms, boasting not only solid technology and delivering quality products that are benchmarks for other domestic makers, the recent global economic fallout, though, threatens to disrupt its continual growth.

Finding opportunity amid the gloomy global economic outlook, J.P. Dong, deputy secretary general of the China Association of Automobile Manufacturers (CAAM), urges Chinese auto parts makers to tap the slowdown, which offers precious downtime, to their advantage, using the free time to improve management mechanisms, strengthen operating systems, and upgrade technologies, so as to enhance their core competence.

"The global downturn is a good opportunity for local auto-parts makers to try to patch up the holes in their R&D programs-develop new or absorb imported cutting-edge technologies-notably those related to new energies," says Liu Yang, an auto expert.

Target Global Niches

Industry insiders in China remark that, with ever heightening degrees of economic globalization, domestic auto-parts makers should target global market niches by making the most of their capabilities, expertise and inclinations. They can also cooperate with foreign counterparts, specifically small- and medium-sized enterprises (SMEs) with strong technologies, to upgrade their own. Adopting M&A is an option for major Chinese auto-parts makers to easily acquire foreign SMEs to access established brands and technologies.

Teamwork is yet another viable choice: The industry should set up common technological platforms upon which to share, exchange know-how, with the aim to achieve breakthroughs, especially in electronic control. In addition, engaging in technological cooperation with domestic academic institutions and foreign research bodies, including those sponsored by overseas Chinese, is advisable. Plus tapping into supply chains of automakers is another channel, which can take the form of working with carmakers during new-part development programs.

Encouraging Real-world Example

An encouraging real-world example is the joint-venture factory to be inaugurated in 2009 between the Guangzhou Automobile Group Component Co., Ltd. (GACC) and Johnson Controls of the U.S., a globally-leading maker of auto interior accessories. The joint venture will see GACC introduce, absorb Johnson Controls' cutting-edge technologies for auto interior accessories, as well as its excellent management and production systems.

Another step in the right direction to upgrade the overall development of the auto parts sector in China is the upcoming construction of an advanced factory for car engine parts in Zhaoqing City, home to 20 mostly engine parts makers, Guangdong Province, to be built by the city government with a provincial government subsidy of 90 million RMBs. The contract signing ceremony for the project was held in Zhaoqing on Dec. 1.