JINZHOU, China: Zhao Qingjie's favorite book, he says, is a Chinese
translation of the autobiography of Lee Iacocca, the celebrated American
Zhao, who runs one of China's largest manufacturers of automotive starters
and alternators, has long been interested in the United States. That should make
his counterparts in the auto parts industry elsewhere very nervous.
"Entering the U.S. market is one of our key strategies," said Zhao, whose
company, Wonder Auto Technology, has obtained a Wall Street stock listing and is
preparing to start exporting.
China's auto parts exports have increased more than sixfold in the past five
years, nearly topping $1 billion in April and emerging as one of the
fastest-growing categories of Chinese industrial products sold overseas. More
than half of these auto parts go to the United States; most of the rest go to
Europe and Japan.
The rise of Chinese auto parts exports is part of a much broader shift. China
is moving up from producing basic goods like textiles, toys and shoes and toward
making higher-value industrial goods. The production of the higher-value goods
pays better wages, but these goods also compete more directly with products from
countries like Mexico and even from advanced industrialized countries like the
While China has room for considerable further growth in auto parts exports to
the United States, it is not competitive overseas in bulky products - like car
seats - that are uneconomical to ship, nor can it export parts that need to be
manufactured close to a car factory for quality-control reasons.
China's rising labor costs and strengthening currency are also making
automakers leery of becoming too dependent on China for parts that can be
The latest wave of Chinese auto parts exports is nonetheless on the rise, led
by domestic Chinese auto parts manufacturers like Wonder Auto that are rapidly
gaining strength and starting to enter markets around the globe.
Domestic manufacturers like Wonder and Wanxiang Group are relying on the same
inexpensive Chinese assembly line labor as the multinationals like Delphi
Automotive Systems and Visteon. But they can undercut the globe-girdling giants
in part by hiring talented but cheaper Chinese engineers and headquarters staff.
Soaring output at auto assembly plants in China is generating enormous demand
for auto parts and creating the economies of large-scale production previously
possible only in North America, Europe and Japan.
With at least a half dozen Chinese automakers planning to start exporting in
the next few years, Chinese auto parts will soon be going overseas not just in
crates but as part of fully assembled cars.
Multinational automakers set virtually the same quality standards for their
operations all over the world. They are working closely with Chinese parts
companies to help them meet these standards; once they do, they are allowed to
submit bids for supplying factories elsewhere.
"They get put on the global list, and then can quote for anything worldwide,"
said Nick Reilly, the president of GM's Asian and Pacific operations.
Chinese auto parts have surged in the American market as imports have
declined from the Japan, Canada and Malaysia and have stagnated from Mexico and
the European Union.
China is strongest in electrical and electronic components and in cast metal
parts that require environmentally hazardous casting and a lot of manual labor
Feeling the pinch are small auto parts manufacturers and their employees in
the United States, heavily concentrated in Ohio and mainly supplying larger auto
parts companies instead of shipping directly to the big automakers.
While overall U.S. industrial production is on the upswing, the troubles of
the auto parts industry could become an issue in next year's presidential
China is rapidly grabbing orders for replacement parts sold to repair
garages. Wanxiang Group is already building up its distribution in the United
States by purchasing Neapco, a steering shaft company in Pottstown,
Pennsylvania, and striking a deal with Ford in April to buy its prop shaft
Zhao, of Wonder Auto, calculates that it costs him $4 million to set up an
assembly line in Jinzhou with mostly manual labor, employing 20 workers.
The combined wages of 20 workers here come to only $40,000 a year at the
current exchange rate of 7.65 yuan to the dollar. That is in the range of annual
base pay wages for one unionized auto parts worker in the United States and
comparable to two nonunion American auto parts workers.
Total benefits for 20 workers add up to another $20,000 a year, Zhao said.
The company's wages of $170 a month remain respectable by the standards of
this gritty refinery city of 800,000 in northeastern China. A small apartment
without modern amenities like a refrigerator or air conditioning rents for as
little as $40 a month, while even a large meal at the restaurant of the city's
best hotel costs less than $3.
Jobs at Wonder Auto are highly prized and turnover is almost zero, said Sun
Shao-hua, 30, who strips copper wires for alternators, the devices that take
mechanical energy from the engine and turn it into electricity to recharge the
"Many people come, but nobody ever leaves," he said.
Zhao said he was already in discussions with General Motors and Volkswagen
about supplying their operations, first in China and then overseas. For now,
Zhao mainly supplies domestic Chinese carmakers, notably Brilliance China
While China's auto parts industry is growing rapidly, automakers are nervous
about buying all of their parts from China. They cite three important factors
that are becoming increasingly unpredictable for any manufacturer doing business
in China: labor and raw material costs, and the exchange rate of the yuan
against the dollar.
Industrial wages are still low in China compared with wages in other
car-manufacturing countries. But Chinese wages have been soaring by 10 percent
to 30 percent a year for the last several years, auto executives said.
Skilled workers at car factories in high-income coastal areas can earn nearly
twice as much as workers here in northeastern China, a Rust Belt of aging
industrial complexes built with Soviet help in the 1950s.
The biggest question mark hanging over China's future exports lies in the
currency exchange rate - a problem Japanese auto executives in particular know
well after dealing with the yen-dollar exchange rate.
China has allowed the yuan to appreciate by 6 percent against the dollar
in the nearly two years since breaking its fixed peg to the dollar. Chinese
officials have repeatedly warned of their reluctance to accept faster
But Chinese foreign-exchange reserves have ballooned to $1.2 trillion from
$316 billion in the past four years as Beijing has bought dollars on an enormous
scale to prop up demand for the American currency and prevent it from falling
faster against the yuan.
For all the uncertainty, Wonder Auto and other Chinese parts makers are
growing quickly. Wonder's sales rose 45.8 percent in the first quarter, to $21.6
million; profits nearly doubled, to $2.7 million.
Traded on the over-the-counter market in the United States, the company's
shares have risen more than fivefold since an initial public offering last June;
Wonder Auto has applied for a Nasdaq listing. The rapid rise has enriched Zhao,
who owns 54.2 percent of the company's shares, worth more than $90 million, as
well as 11 percent of another company in Jinzhou that manufactures air bag
That is quite a change from his earlier life. Forced to spend three years on
a farm after high school during the Cultural Revolution, Zhao taught himself to
fix tractors. Denied admission to a naval academy because his father was a
Nationalist soldier before the Communists won China's civil war, Zhao went to a
technical institute instead.
(Courtesy of International Herald Tribune)