Onsite N2 Generator Skid,Onsite N2 Generator Skid Package,Onsite N2 Generator Skid for Oil field Suzhou Xinrui Purification Equipment Co.,Ltd , https://www.gas-equipment.net
China's auto parts position in the global supply chain
Deputy Secretary-General of the China Association of Automobile Manufacturers, Shen Ningwu,
Jan Borgonjon:
The following discussion is about the Chinese auto parts industry, and I believe this session is closely related to the previous ones. The Chinese auto parts industry plays a vital role in the broader automotive sector. It has not only seen technological development and improved part compatibility but also holds a significant cost advantage. From a global perspective, automakers worldwide are keenly interested in China’s parts industry and hope to source more components from China. Today, we have three well-known representatives in this session. Let me introduce the first speaker, Mr. Shen Ningwu.
Mr. Shen Ningwu has worked in various positions within the Dongfeng Group for many years. He has held key roles in affiliated companies, including joint ventures under Dongfeng. Currently, he serves as Deputy Secretary-General of the China Association of Automobile Manufacturers, where he oversees the parts and components sector. He will now share his insights.
Shen Ningwu:
Good afternoon, everyone. The topic of my speech today is “The Status of China’s Auto Parts Industry in the Global Supply Chain.†I will focus on the current state of the industry and discuss how to enhance its competitiveness. I will cover five main points. First, I will highlight some of the challenges that I’ve observed in recent years in the Chinese auto parts industry—these are issues that need attention, though I may not have all the answers. Second, I will outline the historical background and current status of the Chinese auto parts industry. Third, I will examine the trend of Chinese auto parts companies expanding overseas. Fourth, I will present the 11th Five-Year Plan for the auto parts industry. Finally, I will analyze China’s position in the global supply chain.
First, I want to raise some questions about the development of the Chinese auto parts industry. With the rapid growth of China’s automobile industry, the proportion of the parts sector in the overall manufacturing industry has been increasing. During the 11th Five-Year Period, it is expected to be a golden era for development. China must become a global center for auto parts manufacturing, with terms like “global procurement base†becoming common. But is this expression accurate?
Second, the 11th Five-Year Plan for the auto industry sets a goal to comprehensively improve the competitiveness of the parts sector. This is timely and important, but the plan lacks specific implementation measures, which could raise concerns. By the end of the 11th Five-Year Plan, has China’s auto parts industry become more competitive globally or has the gap widened further? Is the growth just quantitative, or does it bring a fundamental change?
Third, what are the main reasons behind the low competitiveness of the industry? How should the government, industry associations, and enterprises each play their roles? Frankly, the government has not yet set clear policies or responsibilities. Industry management has become too loose. Does this mean that companies will be the core of future competitiveness?
Fourth, the weak independent development capabilities of enterprises, lack of core technologies, and dependence on foreign-controlled key components are major obstacles to improving competitiveness. Facing large investments and M&A trends by foreign firms, traditional domestic parts companies are at risk of being marginalized. The debate over whether the market can drive technological advancement has intensified. Policies restricting foreign M&A have emerged. What adjustments should be made to the use of foreign investment in the auto parts industry in the future?
Fifth, the number of private enterprises is growing rapidly, as are foreign and Sino-foreign joint ventures. How do we define China’s auto parts industry? I remember a comment from the former Director of the National Development and Reform Commission, Chen Bin, at the Tianjin Forum. He said he couldn’t figure out what the Chinese auto industry was. Now, I find it hard to define the auto parts industry as well. Are foreign-owned parts companies registered in China considered part of the industry, or are they excluded? Improving industrial competitiveness means enhancing the competitiveness of the entire industry, including foreign companies, or keeping them out of the narrow definition of competitiveness? We must comprehensively enhance the competitiveness of the auto parts industry and focus on key areas.
Looking back at the history of China’s auto parts industry, it started with agricultural machinery, parts, and trucks. This early development model led to a long history of small-scale operations and low technical standards. Although there have been improvements, the overall level remains insufficient. The industry has relied heavily on OEMs, local government protection, and car rental models, leading to product monotony and weak market competitiveness, especially in some SOEs.
The development of the auto parts industry has been driven by the construction of Sino-foreign joint-venture sedan plants. This was supported by policies promoting localization rates, and during the 9th Five-Year Plan period, increased investment helped the sector grow. However, after entering the WTO transition period, the impact of these supports has weakened. SMEs and private enterprises have grown rapidly, showing strong potential and competitive advantages.
Currently, the output value of auto parts accounts for nearly 35% of the total automotive industry. There are 4,447 large-scale parts companies in China, according to the National Bureau of Statistics. However, the actual number of parts companies in China is unclear. The distribution shows that most companies are concentrated in Zhejiang, Jiangsu, Shanghai, Hubei, Shandong, Guangdong, and Jilin. Shanghai and Zhejiang have higher output efficiency. Among the 4,447 large-scale companies, less than 1% are large enterprises, and less than 15% are medium-sized.
In 2005, the top 100 parts companies had sales revenue of 25.2 billion yuan, which is much lower than the tens of billions of dollars of international giants. Only four companies exceeded 10 billion yuan in sales, and eight exceeded 5 billion. State-owned enterprises now make up only 4% of the total, while private companies account for 42%, and foreign and joint-venture companies are increasing, making up 10.5%. If state-owned capital holds 30% of shares in joint ventures, then the total state-owned capital in statistical companies is around 50 billion yuan, or 14% of the total. Foreign companies show better efficiency, with an average of 5.9%, joint ventures at 8.5%, and private companies at 5.4%. State-owned enterprises are operating at a loss.
China’s auto parts industry has developed a basic complete system for domestic vehicles, but lacks major assembly and key technologies. Enterprises generally lack independent R&D capabilities. International parts giants are beginning to integrate their Chinese joint ventures, aiming for monopolies in technology development, human resources, production division, and marketing systems. Export volumes have grown significantly, mainly in low-value-added products such as raw materials and after-sales parts. While the export market of joint ventures is high, it is still controlled by foreign entities. Rising raw material costs and price cuts by OEMs have made the operating environment for many Chinese parts factories increasingly difficult. China’s low-cost advantage is under threat.
Although R&D investment in the auto parts industry has increased, it still lags far behind international levels. Last year, R&D spending accounted for 2.5%, compared to 3–5% globally, and even up to 10% in some cases.
In terms of exports, last year, China exported over 8 billion yuan worth of parts. In the first six months of this year, it exceeded 50 billion, and by September, it reached over 70 billion. The characteristics of China’s auto parts exports include low added value and low technical content. Tires and aluminum wheels make up a large portion of exports. The export market is widespread, but primarily targets developed countries, while vehicle exports go to developing nations. The scale is small and fragmented. In 2005, over 10,000 companies exported parts, but few reached over $1 billion in value.
Chinese auto parts companies are expanding overseas, such as Weifang Diesel Engine Factory and Weifang Power, which have established R&D centers in Austria and return to domestic production. Overall, Chinese auto parts companies are still in the early stages of international expansion, lacking experience in talent, financial strength, and global operations.
Under the 11th Five-Year Plan, the auto parts industry is expected to grow rapidly. The plan emphasizes new energy, environmental protection, and electronics. It highlights four themes: powertrains, automotive electronics, industrial needs, and exports. The target is to reach 1.3 trillion yuan in total auto parts output value by 2010, with 730 billion yuan from OEMs and 50 billion USD in exports.
Finally, regarding China’s position in the global supply chain, it has improved significantly, but remains fragile. The proportion of auto parts in the value chain is still low due to low localization rates and low added value. China has not yet formed a scientific supply chain management system. Japanese, American, European, and South Korean systems are dominated by foreign capital and operate independently. China’s parts companies struggle to achieve integration.
Exporting parts should not be overly optimistic. The “fast and three lows†situation—rapid growth but low technology, low added value, and low OEM market share—requires attention. China’s international procurement has become less of a boom, and relying on low-cost exports is unsustainable. Global procurement requires quality, stability, and affordability. China’s overseas parts industry is still in the initial stage. We have not yet become a first-class supplier.
In conclusion, China must take the 11th Five-Year Plan seriously. We need to comprehensively upgrade the competitiveness of the auto parts industry and strengthen our position in the global supply chain. The plan sets a clear direction for the industry’s development. China must increase R&D investment, enhance innovation, foster brands, and build independent capabilities. Industrial restructuring should be prioritized. The government must lead mergers and reorganization to create companies capable of competing internationally.
However, this is not easy. The largest company only reached 25.2 billion yuan, far from the 10 billion USD mark. Without major players, it is hard to establish a strong position in the global supply chain. As China develops its own vehicles, it is essential to promote the independent capabilities of parts companies alongside the main manufacturers. Some argue that without a complete vehicle, there is no need for independent parts. This view has some truth.
Chinese companies should be encouraged to expand overseas, build international cooperation, develop talent, and enhance their global image. Foreign companies operating in China must take social responsibility and contribute to local development. The government should continue to support internal enterprises, open up to foreign investment, and encourage technology transfer. Private enterprises must also be supported through taxation and finance to improve their business environment. State-owned enterprises need reform to become more efficient.
Lastly, while the support from the government is symbolic, it must be implemented effectively. I believe that with improved competitiveness, the Chinese auto parts industry will gradually become an internationalized sector, where multiple forms of capital coexist, compete, and develop together. Our association and the National Bureau of Statistics released the top 100 companies for the second consecutive year. Last year, we included foreign companies in the list. I believe that with continued improvement, the Chinese auto parts industry will strengthen its irreplaceable position in the global supply chain.
Thank you.