China's auto parts industry growing up fast

The year 2006 is significant for China's automobile spare parts industry. On July 1, China's automobile spare parts industry entered into a transitional period after its WTO entry and became faced with severer competitions with China's average tariff level for automobiles dropped down to 25 percent and that for automobile spare parts to 10 percent. At the same time, the Specific Development Plan for the Development of China's Automobile Spare Parts Industry During the Eleventh Five-Year Period will be put forth.

Since 2000, the proportion of the automobile spare parts industry in China's overall automobile industry has been increasing year after year. In 2005, the domestic automobile spare parts industry realized a gross value of industrial output worth RMB 383.8 billion yuan, accounting for 35 percent of the total for the automobile industry while the exports of automobile spare parts exports added up to US$8.5 billion and the production value of OEM products was estimated to be RMB268.1 billion yuan.

From January to September this year, the domestic automobile spare parts industry realized a gross value of industrial output worth RMB 335.773 billion yuan while the exports of automobile spare parts added up to US$8.4 billion and the production value of OEM products was estimated to be RMB255.1 billion yuan. As introduced by Shen Ningwu, a Deputy Secretary-general of China Association of Automobile Manufacturers, the objective for the domestic automobile spare parts industry during the Eleventh Five-Year Period is to realize a gross value of RMB1.3 trillion yuan including a production value of OEM products worth RMB730 billion yuan while making efforts to realize a total export worth US$40 billion by 2010.

So far as the profit rate is concerned, the automobile spare parts industry still maintained a profit rate higher that the average level for the automobile industry while the profit rate for the complete vehicle industry has been decreasing incessantly. Statistics show that in 2005, the profit rate for the automobile industry in China was 5 percent while that for the automobile spare parts industry was 6 percent.
Such an enticing market has attracted foreign funds to swarm in one after another. Delphi Corporation, which has invested over US$500 million in research and development centers, training centers and 15 enterprises in China, has realized a sale of US$1 billion. Bosch has set up 10 representative offices, 5 trade companies, and 18 enterprises with an investment of US$600 million, and its sale has amounted to Euro 1.4 billion......

Well-known international groups of automobile spare parts have increased their investment in China's automobile spare parts industry in succession, thus there has shaped up a system covering the whole process from research and development to training, production, and sale while such groups have begun to get integrated those enterprises in which they have invested in China in accordance with optimal labor division and optimal layout. Foreign investments in joint ventures in China are transforming in form silently from participation with shares to participation as a holding company, from joint ventures to solely funded enterprises, from obtaining market shares to the monopoly in the market.

After a development of nearly 10 years, the proportion of China's automobile spare parts industry in its overall automobile industry has been increasing year after year while the manufacturing level has substantially improved. Certain enterprises have been provided with the capabilities for independent development and systematic supply of goods, and some enterprises have become capable of providing a complete system of spare parts for commercial vehicles and providing a system of common spare parts for passenger cars. Nevertheless, the proportion of 35 to 36 percent of the spare parts industry in the automobile industry is still comparatively low when compared to the international level of 60 to70 percent.

In 2004 and 2005, the China Association of Automobile Manufacturers and the Department of Industrial and Transportation Statistics under the National Bureau of Statistics of China jointly issued the "Top 100 Enterprises in China's Automobile Spare Parts Industry" in two successive years. The difference is that in 2005, foreign solely funded enterprises were also included in the scope for the ranking of the Top 100 enterprises.

As to such a fact, Shen Ningwu proposed that the development of China's automobile spare parts industry began from facing the pressure of competitions from foreign funds and the gap between Chinese and foreign enterprises. As shown by statistics of the "2005 Top 100 Enterprises in China's Automobile Spare Parts Industry", 54 out of the Top 100 enterprises are foreign-funded enterprises and most of them hold better rankings. In the meantime, the control of foreign investors over the core technologies for certain key parts and the status that foreign enterprises hold a monopoly of prices will continue in a rather long period of time.

For the moment, China's automobile spare parts industry is fundamentally a completely open-up market; and for the future, the automobile spare parts industry will be an international combination as well. The only road to development is to face the gap directly: the government, the industry and various enterprises play their respective roles and make joint efforts, take initiatives to participate in restructuring and mergers so as to improve the overall competitiveness.

It is a definite fact that China's exports of automobile spare parts have been increasing continuously and rapidly from US$6.13 billion in 2004 to US$8.5 billion in 2005. The prospects for the export market are also favorable: relevant data show that by 2010, the trade volume of the world's automobile product trade will amount to US$1.2 trillion and automobile magnates' purchases of automobile spare parts in low-cost countries till 2007 will add up to nearly US$50 billion, 70 percent of which will be made in China.

It seems that the situation is fairly optimistic. But Shen Ningwu reminded that the automobile spare parts industry could never simply pursue for a dignity on the surface: a quick growth in quantity should not cover the low technological content in products, the low added values of exports, and the low proportion of OEM products in the market. For the time being, a problem existing in the exportation of automobile spare parts is still the exportation pattern that priority is given to products of the raw material consumption type, after-sale market and individuals' placing orders.

China Association of Automobile Manufacturers proposed in the Specific Development Plan for the Development of China's Automobile Spare Parts Industry During the Eleventh Five-Year Period that by 2010, the objective for the exportation of automobile spare parts is US$35 to 40 billion. And after 2008, the export increment will be US$10 billion, which can only be realized on basis of the entry into the global purchase system and a stable OEM market.