China Amends Rules to Attract Foreign Investment in Auto Parts

Restrictions on foreign ownership ratios are deleted in some categories

Alongside China's growth into the biggest car market by sales volume, the nation, where iconic brands as Buick sell better than in the USA, is also a key global supply system for auto parts and accessories, with virtually all the world's big names in car-making, parts and accessories running operations in China, where economic growth may have slowed in the past year but still churns ahead relative to other economies.

Automakers worldwide have unified procurement of parts, which are supplied by a global production chain, a large segment of which being in China that exports tires, windscreens, and audio systems, among others.

Driven by steady growth in new vehicle sales in China, which breeds substantial growth in demand for after-sales services, the scale of China's auto parts and accessories trade is rapidly expanding.

Favorable Policies
Actually a series of government measures announced over the past decades have laid the foundation for rapid growth of China's auto parts industry. Significant programs include the “Equipment Manufacturing Restructuring and Revitalization Plan” promulgated by the State Council on May 12, 2009, the “Basic Mechanical Parts Industry Revitalization Plan” issued by the Ministry of Industry and Information Technology on October 11, 2010, as well as the new “Guiding Catalogue of Industrial Structure Adjustment (2011 version)” promulgated in 2011 and the “12th 5-year Development Plan for Machinery Industry” announced on July 31 of the same year.

Such measures show the government's resolve to build conducive environment to foster, backed by a variety of enforcement policies, the automotive parts sector.

The “Catalogue for the Guidance of Foreign Investment Industries (Amended in 2011),” which came into effect on January 30, 2012, drew a good deal of attention within the industry for setting a legal framework to further encourage foreign investments in China's auto parts industry.

The Amendment, apart from deletion from the “Encouraged” category “whole vehicle manufacturing”, includes an overall increase in “Encouraged” items, as well as deletion of restrictions on foreign ownership ratios in some areas.

Foreign investment is encouraged in automotive engine, key auto parts, and other key technical manufacturing and R&D as well as related research institutes, which not only favors foreign investors, but also facilitates Taiwan's entry into China's auto parts market.

Mould Capital
In line with the central government's policy to upgrade China's auto parts industry, Dongguan City government recently built a 17-square-kilometer auto parts industrial park in Xiegang, which supports the groundbreaking development of the nearby Hengli car mould industry. Besides pushing the town's mould industry to higher plane, the move also reinforces strength of the mould sector to fuel growth of China's auto parts industry. .

Hengli's mould industry focuses on automotive applications, with seven or eight specializing in such application of the dozen largest operators with annual revenue exceeding 100 million yuan.

Hengli Town is concentrating on building itself into not only a “mould town” but also the “mould capital” of China, integrating the four elements of industry, technology, finance and personnel to reach the goal.

At the same time, the town's mould industry will collaborate to build an innovation center, endeavoring to develop “molding” as the pillar industry to lead enterprises to achieve innovation, as well as coordinate industrial structure to help them pursue sustainable growth.

In addition, the town will also set up a venture capital fund and accelerate the establishment of small lenders to offer easy financing to meet needs of enterprises and full financial services to businesses.

Casting Sector
Experts say that Hengli's future lies in automotive mould, while automotive casting is also set to see growth driven by steadily increasing car sales due to rising consumer power and sophistication.

While China provides a full range of automotive castings, there are some serious challenges: quality of casting materials need improvement, with further qualitative upgrading of automotive castings themselves being key to productive development of the casting industry.

Experts rightly believe that upgrading the mould industry is part and parcel to improve quality of automotive castings. As in most other trades in China, a host of enterprises supply casting materials in the nation but with widely disparate qualitative levels and poor product stability; while some have emerged as leaders but without reaching international standards. In short, uneven and questionable quality of automotive casting materials undermines quality of automotive castings themselves.

To deal with such casting quality problems, some experts believe that carmakers need to set their own standards and systems for casting materials, by using materials that meet in-house requirements and as far as feasible establish an effective evaluation system for casting material suppliers regarding product quality and stability.

Such strategy can motivate casting material suppliers to keep abreast of advanced international technology, absorb innovations for further development. In terms of technology, quality, production, and eco-friendly casting techniques, progress needs to be steady to enable survival of the fittest, thus gradually turning the casting materials industry into an internationally competitive, fully modernized industry. Also casting material suppliers and automotive casting operators must work in close cooperation to assure future development of China's casting industry.

Tianjin Future Science City
Tianjin Future Science City is another major project initiated by a city government in support of the central government's policy, with total investment estimated to top US$1 billion to build the City into another leading auto parts cluster in China.

The project, invested and built by China Auto Parts & Accessories Corp., is expected to attract global leaders in auto part manufacturing and related companies to build a platform for internationally advanced auto parts R&D, industrialization, and services, which is also being given impetus by an industrialization fund.

The first phase of the project will begin construction in the second half of this year, with more land set aside for further development in the Ninghe district within the Future Science City, to construct an industrial hub integrating internationally advanced automotive component development, services and production. Mass production start-up will achieve annual auto parts value of over 10 billion yuan.

Tianjin Future Science City, one of four leading incubation bases and technology centers nationwide, is in Tianjin's Binhai High-tech Industrial Development Zone, covering core area of 30.5 square kilometers and an expansion zone of 40 square kilometers.

According to Ni Xiangyu, director of Tianjin Binhai Hi-Tech Area Committee, in the next decade, Tianjin Future Science City will be at the forefront of auto parts development and production as it attracts the cream of foreign and domestic high tech personnel, to become a hub for technological innovation and hi-tech industries.