China's auto parts policy adjustment opportunities and problems coexist

China's Auto Parts Policy Adjustment

Despite the reduction of import tariffs on parts and components after China’s accession to the WTO, there have been concerns that the Chinese auto industry will face catastrophe. In fact, since China’s accession to the WTO, China’s auto parts industry has stood the test. Although the auto parts industry is not as volatile as the entire vehicle industry, development opportunities and problems remain.

China's auto parts industry is in a new round of peak development. The favor of international buyers for Chinese auto parts and components, and the national “Eleventh Five-Year Plan” positioning for comprehensively enhancing the competitiveness of the auto parts industry has brought great opportunities for the development of auto parts in China. On the other hand, rising prices of raw materials, increasing cost pressures, and strong competition from multinational giants have made it difficult for many local parts companies to survive.

The data shows that China's auto parts industry is already the fifth largest supplier of US parts. It is estimated that during the "Eleventh Five-Year Plan" period, China's spare parts market will reach an annual growth rate of 35%. Before 2010, China’s exports of parts and components will reach US$40 billion. Industry sources pointed out that at present, more than 70% of multinational component giants have gathered in China, bringing severe tests to local parts and components companies.

Parts companies

Severe marginalization

At present, the parts and components enterprises are marginalized, and the tendency of foreign-controlled and sole-funded enterprises is becoming more and more obvious. For example, Tangshan Aisin Gear, formerly a Sino-Japanese joint venture, later purchased Japanese shares and became a Japanese-owned company. In recent years, foreign-funded enterprises with wholly-owned and controlled subsidiaries in the spare parts industry have increased. For example, Guangzhou Toyota Engine Co., Ltd. accounts for 70% of the shares; Volkswagen FAW Engine (Dalian) Co., Ltd. holds 60% of the shares; Eaton Electronics (Zhongshan) Co., Ltd. 51% shares; Jinbei Uniform Automobile Parts Co., Ltd., South Korea Uniform Heavy Industry accounted for 51% of the shares.

As Europe and the United States, Japan and South Korea multinational parts and components companies follow the vehicle into China, their advanced management, leading technology, coupled with its continued efforts to continue the original supporting relationship, so that Chinese parts and components manufacturing companies is difficult to enter the vehicle market. Foreign parties strictly control technology spillovers, making Chinese-funded parts and components enterprises have a tendency to be marginalized in terms of investment, technology, and markets.

Global component reshuffle

China welcomes opportunities

In recent years, in the parts and components system, international giants such as Mitsubishi, Bosch, Delphi and Visteon have all expanded overseas and have impacted China's zero industry. Since 2005, General Motors has reduced the number of its 1,700 suppliers worldwide by 500. Delphi also plans to reduce suppliers from 4,000 to 700-900. Relevant persons judged that the current international is facing a new round of automobile industry transfer. In order to break the unbalanced competition structure, the supply chain of multinational auto companies began to loosen, and the supplier system is changing. Realize local and regional production for global production and form a new batch of automotive industry clusters.

In addition, the burden on the welfare and social security systems has become increasingly heavy and the labor costs in Europe and the United States have increased significantly. At the same time, Asian countries, including China, have increasingly obvious advantages in labor costs. In addition, the technology of European, American, Japanese and Korean companies is already very mature, but they are faced with high engineering and mold costs, as well as high R&D and innovation costs. At the same time, they still lack sufficient engineers and technicians. These are precisely the advantages of Chinese suppliers.

It is understood that statistics show that by 2010, the total trade volume of world auto products is expected to reach 2 trillion US dollars. Multinational companies plan to purchase 50 billion U.S. dollars worth of spare parts in low-cost countries by the end of 2007. The rapid development of the automobile industry in countries such as China and India has made these regions a potentially huge automobile market, and has provided the best opportunities for multinational corporations to adjust their industrial chains. According to industry insiders, the ability of Chinese auto companies to participate in international competition is gradually increasing, which allows them to get more opportunities and join the wave of international mergers and acquisitions and restructuring.

Some experts pointed out that the increase in global procurement of multinational companies in China also brings hundreds of millions of markets to Chinese companies.

Improve competitiveness comprehensively

Is the main goal of the future

The National Development and Reform Commission regards the comprehensive enhancement of the competitiveness of the auto parts industry as the main goal of guiding the development of the spare parts industry during the “Eleventh Five-Year Plan” period.

The investment in R&D of China's auto parts companies currently accounts for only about 1.4% of sales revenue, far below the average of 5% for multinational companies. The shortage of research and development funds directly led to the backwardness of R&D facilities, resulting in weak research and development capabilities. The lack of development capacity and the lack of competitiveness of self-owned brand products have seriously hampered the enhancement of the international competitiveness of auto parts.

The entire vehicle includes tens of thousands of parts. If the key parts and components do not have their own brands, the development of the national car companies will still be subject to control from time to time. However, it is possible to achieve breakthroughs in a certain area so that key components can not only be self-sufficient but also face global supply. It is a very large market.

Some experts stressed that the domestic parts and components industry must form its own characteristics and brands, achieve large-scale operations, and support various types of products. In particular, it must closely cooperate with the brand strategy of the entire vehicle company, and through joint cooperation, improve competitiveness and gradually build Chinese auto parts and components. Product "cost, quality, high-tech" A-level image.

The "Eleventh Five-Year Plan" requires that China's auto parts industry should gradually increase research investment, enhance independent innovation capabilities, foster independent brands, and form independent R&D and technological innovation capabilities as soon as possible. The adjustment of industrial structure should achieve remarkable results. Energy-saving, environmental protection, safety, and application of recycling technology should approach or reach the international advanced level, and participate in the cooperation and competition of the international automobile industry in a deeper degree, and the world’s major auto parts manufacturing bases should be initially established.

Cross-cutting cooperation

Fill high-tech blank

China’s auto market ranks in the top 4 in the world. Although auto parts and components are in a period of rapid development, due to the long-term lag, auto parts and components industry still has a poor foundation. Among them, 80% of automotive technology is still in the hands of foreign brands, especially in the core technology fields such as high-end engine and electronic technology. It is very nervous to meet the needs of rapid development of automobile production.

Insiders pointed out that China's current high-tech automotive electronics information technology products are still very weak, in addition to audio systems, automotive IC, high-end sensors, microprocessors are basically in blank, have to rely on imports.

Today, as the IT giants march into the auto parts industry, this phenomenon will change during the 11th Five-Year Plan period. In 2005, Lenovo took the lead in the auto parts industry, followed by Microsoft, Motorola and other international IT giants have also expressed their desire to enter the auto parts market. In fact, the future development trend of the auto parts industry has indeed given these IT giants the foundation for a “car dream”. In the current automotive industry, electronic systems can account for 70% of the total cost of a limousine and 30% of the total cost of an ordinary car. It is predicted that the future development of the world's auto industry will fall into the automotive electronics, intelligence, networking technology and applications. The real goal of the IT giant's acquisition of auto parts companies is to declare war on the vehicle design and initiate a revolution in the standardization of auto parts.

If the standardized electronic components are common across different models, the traditional supplier relationship between existing vehicle companies and component companies will be broken, and IT companies will control the right to speak of the next generation of automotive electronic components market standards. Moreover, for IT companies, this is not a diversified operation in a general sense, but an extension of the main business. It is a diversified, multi-centered, future-oriented company.

Multinational Small Business

Will become the main opponent of the future

Small foreign companies will share the profits of the domestic spare parts industry in a joint and collaborative manner. In the past, parts and components companies that went abroad to open up markets in China were basically large companies and mainstream companies. However, at present, overseas second- and third-tier enterprises and even smaller ones are prepared to take a bite on the big “cake” in the Chinese market. In fact, these small companies are all bad ones. Even if the large local companies compete with these small companies, they may not be able to prevail. Because they compare with foreign large parts and components companies, although the brand is a little inferior, but in technology, technology, etc., compared with Chinese companies are still very competitive.

In addition, compared with Chinese companies, although they do not have a big advantage in terms of cost, they are the common features of these companies. For example, many of them are produced in a joint and collaborative manner. Several small companies form a “honeycomb” organizational structure with precise division of labor and cooperation, effectively maximizing efficiency and minimizing costs. As overseas small companies enter the Chinese mainland market one after another, it will surely pose a new round of challenges for local parts companies.

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