China's auto parts enterprises are marginalized

Automobile manufacturers are essentially assembly plants, and the quality of a vehicle largely depends on the parts and components used. It is the complex and well-developed automotive parts industry that ultimately shapes the strength and competitiveness of a country's automobile sector. Recently, Shen Ningwu, deputy secretary-general of the China Association of Automobile Manufacturers, has become a central figure in discussions about the potential "marginalization" of Chinese auto parts companies. The Financial Times recently conducted an exclusive interview with him to explore this pressing issue. Shen Ningwu defines the risk of marginalization as the possibility that traditional Chinese auto parts companies may be squeezed out by foreign firms and joint ventures. He points out that foreign auto parts companies are shifting their strategies in China, moving from equity participation to full ownership, from joint ventures to sole proprietorships, and from market access to market dominance. This trend raises concerns about the long-term sustainability of domestic suppliers. Despite these challenges, there are significant national opportunities for growth. The rapid expansion of the automotive manufacturing industry has created strong demand for upstream and downstream components. In turn, the auto parts industry has played a crucial role in supporting the development of automakers. If either sector becomes marginalized, it could lead to serious consequences for the entire industry. In line with the National Development and Reform Commission’s “Eleventh Five-Year Plan” for the automobile industry, the China Association of Automobile Manufacturers has proposed an export target of $350–400 billion for auto parts by 2010. The association is now working with the Ministry of Commerce to develop a detailed export strategy and integrate it into the broader plan for the industry. Currently, the National Development and Reform Commission has authorized the Automobile Association to compile special development plans for auto parts as a supplement to the overall industry plan. These plans include both small-industry strategies for different branches and key product roadmaps. So far, most of the small-industry plans have been completed, and the association has conducted reviews of specific areas such as clutches and steering gears. According to global statistics, the total trade volume of automotive products worldwide is expected to reach $1.2 trillion by 2010. Major automakers are investing heavily in low-cost countries, with 70% of these investments targeting China by 2007. This highlights the growing importance of China in the global automotive supply chain. At the 2005 Barcelona International Automotive Symposium, Shen Ningwu addressed the topic of China’s expanding auto industry. He emphasized that while China was not yet a threat to the global auto industry, it was becoming a major supplier of components. This shift underscores the need for Chinese parts companies to strengthen their position in the global market. As competition in the整车 (complete vehicle) market intensifies, automakers are reevaluating their partnerships with parts suppliers. They are pushing for lower costs through increased localization and domestic procurement. This creates new opportunities for Chinese auto parts companies to grow and become more competitive. However, the industry still faces significant challenges. One of the biggest issues is the lack of high-value-added products. While exports have grown rapidly—up to 53.43% in 2005—the industry experienced its first profit decline in a decade. This highlights the need for Chinese companies to move up the value chain and develop advanced modules and systems that can compete globally. Foreign capital continues to dominate key technologies and core components, giving multinational companies a significant advantage. Many Chinese auto parts companies remain small, lack technical capabilities, and struggle to integrate into global supply chains. Additionally, the majority of patents in the industry are held by foreign firms, further emphasizing the need for innovation and self-reliance. To overcome these challenges, Shen Ningwu emphasizes the importance of improving the overall strength of Chinese auto parts companies. Only by developing world-class suppliers can China build an independent and sustainable automotive industry. The path forward requires not only technological advancement but also stronger collaboration, better management, and a clearer strategic vision.

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