China's auto parts enterprises are marginalized

Automobile manufacturers are essentially assembly plants. The quality of a car is largely determined by the components and parts it uses. It's the complex and well-developed automotive parts industry that ultimately shapes the development of a country's auto sector. Recently, Shen Ningwu, deputy secretary-general of the China Association of Automobile Manufacturers, has become a central figure in discussions about the "risk of marginalization of Chinese auto parts companies." The Financial Times conducted an exclusive interview with him to explore this growing concern. Shen defined the risk of marginalization as the possibility that traditional Chinese auto parts companies could be squeezed out by foreign firms and joint ventures. He explained that foreign auto parts companies are making significant shifts in their investment strategies in China—moving from joint ventures to sole ownership, from holding shares to gaining full control, and from simply accessing the market to attempting to monopolize it. There are national opportunities emerging for the auto parts industry. The rapid growth of the vehicle manufacturing sector has created strong demand for upstream and downstream components, while the parts industry itself has played a crucial role in supporting automakers' expansion. If either side becomes marginalized, it would pose serious risks to both industries. In line with the National Development and Reform Commission’s “Eleventh Five-Year Plan” for the auto industry, Shen proposed to the Ministry of Commerce that the target for auto parts exports reach between $350 billion and $400 billion by 2010. The association will work with the ministry to develop a specific export plan and integrate it into the broader auto industry strategy. The plan includes two main parts: small industry plans for each component segment and key product strategies that influence the entire industry. Currently, the National Development and Reform Commission has authorized the Automobile Association to compile special development plans for auto parts, supplementing the overall industry plan. So far, the small industry plans have been largely completed, and the association has reviewed the clutch and steering gear plans in detail. According to statistics, global auto product trade is expected to reach $1.2 trillion by 2010. By 2007, major automakers had already invested over $50 billion in low-cost countries, with 70% targeting China. In November 2005, Shen spoke at the Barcelona International Automotive Symposium, emphasizing that although China was not yet a threat to the global auto industry, it was becoming a key supplier in global sourcing. As competition in the vehicle market intensifies, automakers are rethinking their partnerships with parts suppliers. They are reducing costs through localization and domestic procurement, which opens up new opportunities for parts companies. However, the issue of marginalization remains a sensitive topic. Shen stressed that while the risk exists, it should not be exaggerated. He believes that rather than fearing marginalization, Chinese companies should focus on strategies to mitigate these risks and improve their integration into the global supply chain. Profit declines highlight the reality of marginalization. Despite a 53.43% increase in auto parts exports in 2005, the industry saw its first profit decline in 10 years. This loss of profitability has been painful for Shen, who emphasizes the need for Chinese parts companies to develop high-level capabilities, including module supply and system integration, to compete globally. At present, China's auto parts exports are dominated by low-value products, mainly in the after-sales market, where price competition is fierce. While export volumes are rising quickly, efficiency gains remain limited. To change this, Shen argues that the overall strength of Chinese auto parts companies must be improved. Foreign capital is also increasingly surrounding China’s auto parts industry. Many foreign companies control core technologies and enjoy preferential treatment, giving them a competitive edge. Experts warn that this situation poses a real risk of marginalization. Currently, there are around 6,000 auto parts manufacturers in China, but few have the scale or market presence to stand out. Shen points out that most companies lack independent R&D capabilities, struggle to participate in early-stage development, and face challenges in interacting with international partners. Without better integration into modular and system-based supply chains, they find it hard to compete. Core technologies and key markets are still controlled by foreign firms, and many Chinese companies are dependent on them. Only 2% of global patents related to auto parts are registered in China, with just 22% of domestic companies owning patents. The rest are held by multinational corporations, whose patent advantage is growing rapidly. China’s auto industry is now deeply surrounded by the intellectual property strategies of multinational companies, creating a challenging environment for local players.

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