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Problems linger in auto parts sector
By Xie Qingsheng (Business Weekly)
Updated: 2004-07-26 14:22

The auto parts industry has made a significant contribution to the development of China's economy.

However, the industry still has many problems to tackle given the fairly wide gap between the Chinese automobile industry and its foreign counterparts.

As the joint-venture automobile producers try to use more local-made parts in their vehicles, they begin to cultivate their own auto parts suppliers in neighbouring regions.

For example, despite having the same foreign partner, Shanghai Volkswagen and First Automotive Works (FAW)-Volkswagen have their own independent network of suppliers.

Foreign investors in joint-venture automobile producers will also bring their own auto parts suppliers into China and establish joint-ventures producing auto parts.

As a result, China's auto parts industry becomes highly fragmented. Most manufacturers are small- or medium-sized and economies of scale are almost impossible to achieve.

Similar to car manufacturers, the local auto parts producers still rely heavily upon imported technologies. The total volume of original equipment manufacturing auto parts is beyond US$500 billion annually around the world, but auto parts made in China could only have a minor part in this market.

Statistics from the Customs General Administration show that China imported cars and car parts worth US$14.45 billion in 2003, marking a yearly growth of 84 per cent.

Exports of cars and car parts hit US$4.71 billion in the same year, causing a deficit of nearly US$10 billions.

To make things worse, provinces and municipalities where auto parts producers are based have drafted their own plans to further develop the sector. Focusing on different targets, the plans lay out the blueprints strictly within the province or municipal borders, which results in a potential risk that the auto parts sector will witness numerous duplicate projects, outdated technology and poor efficiency.

To maintain the sustainable development of the automobile industry, it is necessary to enhance the regulations of the auto parts sector.

Such measures should be comprehensive and look into the roles of different regions in the whole chain of auto and auto parts production.

Within each region, manufacturers should be encouraged to work together to improve the production scale, lower costs and heighten technology levels.

In this way, regions that are traditionally strong in manufacturing could foster clusters of auto parts producers with a unique competitive edge.

Second, several auto parts manufactures with advanced technologies and competitive products will emerge after the sector sees a less fragmented state. These auto parts manufacturers could maintain a stable co-operation with vehicle manufacturers, participating into research and development and eliminating the vicious competition.

Third, different regions should work together. Coastal areas in the East, where the vehicle manufacturers are based, should try to develop core technologies in producing auto parts while the regions with good manufacturing facilities should focus on improving production lines.. Thus, the competitiveness of the country's automobile industry could be reinforced as a whole.

Such integration of resources has already started. The governments of Guangzhou in Guangdong Province, South China and Guiyang in Guizhou Province, Southwest China, are already exploring options.

Parts producers in Guiyang may join the production of Guangzhou Honda, one of the countries' biggest vehicle manufacturers. Not only will the overall competitiveness of car production in Guangzhou be sharpened, but economic development in the West will also benefit from the co-operation.

Fourth, auto parts producers should introduce advanced technologies and business models and try to penetrate the international market.

Last but not the least, the government should draft some industrial policies encouraging regional co-operation, especially in the Eleventh Five-Year Development Plan for 2005 to 2010.

The author is vice-president of Guizhou University of Technology, member of the Chinese People's Political Consultative Conference.

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