New "Catalogue" Makes China's Auto Parts Industry Worsening

The National Development and Reform Commission and the Ministry of Commerce recently announced the "Foreign Investment Industry Guidance Catalogue (Revised in 2011)". The "Catalogue" will be implemented as of January 30, 2012. In the new "Catalogue", the emphasis will be shifted from "car manufacturing" to "manufacturing and development of key components." This policy is not good news for local auto parts companies. Today, foreign investment in the control of key auto parts is as high as 70% to 80% of the market share. Local auto parts companies are mainly concentrated in non-critical parts and components markets. With foreign spare parts companies scrambling to set up wholly-owned enterprises in the Chinese market, have domestic auto parts companies lost opportunities to grow together with foreign parts and components?

The answer should be affirmative. As the new Catalogue will encourage the shift of emphasis from "whole vehicle manufacturing" to "manufacturing and R&D of key components," the development ecology of the parts and components industry will be affected. In this regard, the existence of local auto parts companies has caused widespread concern in the industry, and it is likely that the local auto parts industry will usher in a new round of reshuffle.

First of all, the lack of accumulation of core technologies remains a lingering disadvantage for local auto parts companies. The facts show that the current level of development of local parts and components companies is uneven, with the vast majority of companies only possessing the function of OEM, small scale of operation, low added value of products, weak market competitiveness, and core technologies.

Secondly, weaker quality control capability is also a serious injury to local auto parts companies. There is a clear gap between this and foreign parts and components companies; it is undeniable that currently a large proportion of local auto parts companies rely on low labor costs. The only advantage of cost is support, but it is constrained by the low level of quality of workers and the lack of scientific system management in the production process. The quality control of individual processes is not in place, resulting in high reject rate of defective products and severe rework; The theoretical understanding of the production line is not in place. There are many unreasonable phenomena in the design and staffing of the production line.

Lack of experience and opportunities for simultaneous development with OEMs, weak brand influence, and outdated corporate management models have caused local auto parts companies to lack adequate competitiveness and compete against foreign-owned parts and components companies, and have benefited from independent branding. The rapid growth of the auto market in the local auto parts enterprises with the independent car companies are facing increasing resistance to development, the competition is facing untold optimism. Therefore, the official implementation of the new “Catalogue” is likely to prompt the local auto parts companies to face the current situation is more tight.

It was really bad news. On January 31, members of the U.S. manufacturing industry, U.S. Senator Brown, and other lawmakers held a press conference to accuse China of subsidizing the auto industry and damage the U.S. industry, and called on the U.S. government to take measures to restrict imports of Chinese auto parts. , automotive electronics equipment, tires and other related products launched more anti-dumping anti-subsidy investigations. The Ministry of Commerce of the People's Republic of China issued an early warning message for this, and asked relevant trade associations and companies to pay close attention and prepare for the relevant preparations.

If the U.S. government insists on anti-dumping and anti-subsidy investigations against Chinese auto parts suppliers, this will be a fatal blow to local auto parts companies, especially tire exporters. According to statistics from the China Association of Automobile Manufacturers, China’s sales of auto parts to the United States in 2011 were US$ 12.8 billion, of which sales of tire components were US$2.4 billion, which exceeded sales of automotive electronics and engines. Many export companies have sacrificed their profits in order to keep their share of exports, and their own profit margins have been squeezed. Now that the U.S. government has taken measures to restrict the import of Chinese auto parts, coupled with the impact of various trade barriers, the survival of domestic auto parts export companies will be tested.

In 2012, the current market situation of local auto parts companies was described as "involved in the enemy's front and back," and "somewhat worse." The advancing local auto parts companies are plunged into endless troubles and are undergoing a severe test that was unprecedented.