Chinese Auto-Parts Makers a Major Driver in Int'l Markets

Backed by the huge domestic market, the Chinese auto-parts industry has quickly emerged as a major force in the international market, as many multinationals have made China their global manufacturing base and local Chinese makers are stepping up efforts to tap overseas markets.

Exports of Chinese auto parts leapt 30% to US$12 billion in the first eight months of 2007 and are expected to hit US$15 billion for the entire year, with major outlets being developed markets, such as the U.S., Japan, and Europe, as well as minor outlets including Brazil, India, and Ukraine. While lower-rung products still account for the lion's share of the export business, such as cast metal parts (aluminum rim, bearing), tire, and electrical assemblies, higher value-added products have garnered a considerable share, including engine and dashboard.

The U.S. is the largest overseas outlet, which absorbed US$7 billion worth of Chinese auto parts in 2006, over half of the total, making China the second largest auto-parts supplier to the market, after Japan, excluding NAFTA (North American Free Trade Agreement) member nations.

A major force of the Chinese auto-parts exports is foreign-invested firms, which have mushroomed in recent years to meet the huge domestic needs of the Chinese market and that of the global market, including the needs of multinational automakers both inside and outside China. Such trend is fueled by lifting of the restriction by the Chinese government on foreign ownership in auto-parts ventures.

Some 70% of the world's 100 leading auto-parts makers have set up manufacturing operations, either 100%-owned or in the form of a joint venture, in China, boosting the number of foreign-invested auto-parts enterprises to 1,200.

On top of its US$500 million investment in China so far, Delphi Corp., for instance, is building an auto-compressor plant in Suzhou, Jiangsu Province, with annual capacity of 550,000 units. Other major international auto-parts makers with plants in China include Bosch, Visteon, Dana, Lear, and Mahle.

To cut their production costs, Japanese automakers have set up complete auto-parts supplying systems in China, with Toyota now capable of obtaining 93% of its needed parts from 15 plants set up by its affiliated auto-parts makers, which also ship part of its output back to Japan.

Meanwhile, along with vigorous development of indigenous Chinese auto brands and the Chinese auto aftermarket, the local Chinese auto-parts industry has been expanding rapidly in recent years. Chery Automotive, China's leading indigenous auto brand, boasts 30 affiliated auto-parts enterprises, capable of supplying key components, including engine and gearbox, to itself and other Chinese automakers. Moreover, it has signed an agreement with Fiat of Italy for supplying the latter 100,000 engines bearing its own ALTECO brand annually.

Major Chinese auto-parts enterprises have been making aggressive forays into overseas markets in recent years. Wanxiang, the largest Chinese auto-parts maker with products including driveline parts, power drives, and bearings, is now an OE (original equipment) supplier to the three leading U.S. automakers, General Motor, Ford, and Chrysler. Its Chicago-based Wanxiang American Company now boasts 19 subsidiaries. The company became in July the largest shareholder of A1, OE supplier of auto modules and logistics operator for the three U.S. automakers. Total revenue of Wanxiang's overseas operations, including the U.S., Europe, and Latin America, is expected to hit 60 billion yuan this year.

The Chinese government has been actively promoting auto-parts exports. In 2007, it granted the title of "auto and auto-parts export base city" to four municipalities, Guangzhou, Baoding, Hefei, and Liuzhou, boosting the number of cities with such title to 12, which also include Changchun, Tianjin, Wuhan, Chongqing, Xiamen, Wuhu, and Taizhou .Municipal governments of those cities are lending them such support as building of dedicated industrial park, tax incentive, financial support, and manpower support.

Export expansion has been an offshoot of the vigorous development of the Chinese auto-parts industry at the domestic front in recent years. Output of the auto-parts industry is expected to jump 30% to 670 billion yuan in 2007. In fact, the industry has been one of the fastest-growing industries in China in recent years, with its output soaring six times during the 2000-2005 period, representing a compound average growth rate (CAGR) of 49%.

China now boasts 4,500 established auto-parts enterprises, with their aggregate output value expected to hit 550 billion yuan in 2007, 80% of the total.

Serving major automakers, Chinese auto-parts have clustered into six major manufacturing bases that stimulate technological progress and enhance staff recruitment, including Beijing-Tianjin, Northeastern China, Central China, Southwestern China, Southern China, and Yangtze River Delta.

In addition to Wanxiang, there have emerged a number of heavyweight auto-parts enterprises, including Yuchai Machinery Guangxi (engine), Beijing Fuyao Glass, Tri-Ring Group (clutch, axle, valve), and Deye Technology (dashboard, auto electronics).

The auto-parts industry has been developing vigorously, in order to meet the huge domestic needs brought about by the fast-developing auto industry, notably the local auto brands, and the expanding aftermarket, targeted to service the nation's existing 39 million privately owned cars.

The development of the industry has been facilitated by the formation of a well established sales network, in which auto-parts marketplaces play a critical role. There are now 300 auto-parts marketplaces scattered throughout the nation, accounting for 60% of the total sales for the aftermarket, of which the leading ones include Shanghai Oriental Auto-Parts Marketplace, Wuhan Auto-Parts Market Place, Suzhou Jiangnan Auto-Parts Marketplace, and Tianjin Auto-Parts Marketplace.

There, however, is still a long way to go for the development of the Chinese auto-parts industry. In developed countries, investments in the auto-parts industry typically amount to 1.2-1.5 times that of auto-making investments, but the ratio in China is a mere 0.3%. In addition, most established auto-parts enterprises spend 1-1.5% of their revenues on R&D, compared with 3-5% in developed nations.

Moreover, there exist numerous small-scale enterprises in the line, flooding the market with substandard products. In Taizhou of Zhejiang province, for instance, there exist 1,200 auto-parts makers, of which only a dozen are well established.

The situation is similar in the export business. Excluding products shipped by foreign-invested firms to their home country and other overseas markets, the bulk of Chinese auto-parts export consists of low-cost substandard products, as a result of which Chinese auto-parts makers have encountered 10 anti-dumping charges this year, mostly in emerging markets, for such products as windshield wipers, windshields, brake disks, and brake drums.