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Foreign auto parts makers zoom into
China
BEIJING - A wave of
new foreign investment in auto parts manufacturing
is occurring, as China's auto sector makes the
transition from an industry based on the assembly
of imported parts kits to an industry that
contains the full industrial chain from raw
materials to finished products. In fact, the auto
parts industry is developing so quickly that some
observers are concerned the field will become
dominated by foreign players, which have
advantages in technology and service over domestic
companies; this may make it more difficult for
China to develop domestic auto brands.
Since 2004, world auto giants have been
readjusting their vehicle production structure in
China, and auto parts makers have been expanding
their presence as part of this. Prominent global
auto parts producers, such as Bosch, Delphi, Magna
and Valeo, have expanded their China operations by
making additional investments in China, indicating
the attractive potential of the China auto market.
For example, FAW Volkswagen has started
construction of a new engine plant near the Dalian
Bonded Zone in northeast China's Liaoning
province. This Sino-German joint venture, with
investment amounting to 150 million euros, will
produce engine parts, including cases, crankshafts
and connecting rods, and assemble finished
engines, with raw materials mainly purchased in
China. The joint venture plans to realize an
annual production of 150,000 auto engines in the
initial stages with a local content percentage of
70%. Production is targeted to reach 300,000
engines a year in early 2007.
Bosch, the
biggest auto parts maker in the world, opened a
technical center in Suzhou City in East China's
Jiangsu province in April, with a total investment
of 60 million euros, which will provide parts and
system testing services for Chinese auto parts
manufacturers and conduct localized production of
products. Bosch plans additional investments of
US$600 million in China.
Delphi, the
second biggest auto parts supplier in the world,
announced that its new plant in Suzhou has started
production in April, while its newly built R&D
center has started operation in China. Up to now,
Delphi has opened 15 joint ventures or wholly
owned enterprises in China, including one wholly
owned company, one training center, one technical
center and 12 factories, including the one in
Suzhou. The company is a supplier to almost all
the Chinese and Sino-foreign auto manufacturing
enterprises in China.
At the same time,
Magna, the fourth biggest auto parts maker in the
world with business volume hitting $20.7 billion
last year, said that it can barely satisfy demand
in China. Mark Hogan, the compnay president, said
it will launch six more new plants in China
similar to its existing six. Its seven
subsidiaries, Magna Stelyr, MagnaDonnelly,
Powertrain, CosmaInternational, Intier, De-coma
and Tesma entered the China market in 1996. Among
them, MagnaDonnelly and Intier have opened six
factories in China, which achieved 180% growth in
2003 and about 30% growth in 2004. Besides the
planned six new factories, Magna also plans to set
up two R&D centers in China, focusing on
electronic and tactile screen technology. It
expects 11% annual growth in sales in the China
market for some time.
Valeo, one of the
top 10 auto parts makers in the world, announced
in April that it had inked an agreement with FAW,
the biggest automaker in China, on a new joint
venture, which will be the ninth joint venture
company of Valeo in China. Valeo will have a 60%
stake in the new company, which will engage in the
development and production of air conditioner
compressors for both Chinese and foreign markets.
Valeo has also announced plans to launch
six plants in China, including a wholly owned
safety system plant in Wuxi, in eastern China,
which will produce such parts as remote controls,
anti-theft appliances, locks, steering rod locks,
door lock controls and grip handles; the Wuxi
facility plans to start production in September
2005. The company also plans to establish joint
ventures for various other components, including
engine cooling systems, wiring systems, and
parking sensors. Valeo will set up a wholly owned
factory for engine control systems in Wuhan, in
central China, producing products of Europe's "IV"
standard, and a wholly owned factory for
electrical systems and auxiliary braking systems
in Shanghai.
These international auto
parts giants entered China in the mid-1990s. After
a decade of fast development, they have helped
China to become the third biggest auto market and
the fourth biggest auto production base in the
world. Industry analysts note that the strong
presence of major world auto parts producers in
China is a move that the companies feel they have
to take, as they have no other choice. Partly,
this was because of recent regulatory changes:
China issued new Administrative Rules on Import of
Automotive Parts with Completed Vehicle Features
on April 1.
According to the rules,
vehicles with a percentage of imported parts
exceeding 40% are regarded as complete vehicles
for tariff collection purposes, which makes them
much more expensive to the customer than locally
produced vehicles, and thereby reduces sales. The
present tariff rate on car parts is 14% which is
about 20% lower than that for complete vehicles.
Even after July 1, 2006, when the tariff rate on
complete vehicles will drop to 25%, the gap on
tariff rate between complete vehicles and auto
parts will still be 9%.
The new rules
indicates the profits of auto enterprises engaging
in CKD (complete knock down) or SKD (semi-knock
down) production will decline sharply (these terms
refer to production methods in which a vehicle is
basically just assembled from parts made
overseas). In order to avoid the higher tariffs
for imported-parts cars, foreign auto enterprises
have no other choice but to invest in new plants
in China. Otherwise, they could lose their
qualification as suppliers in China.
(Asia
Pulse/XIC) |
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