German carmaker Volkswagen, taking advantages of China's cheaper costs, has plans to increase the sourcing of spare parts in the country by ten times this year from 2005.

The carmaker expects to purchase spare parts worth US$1 billion from China to use in markets outside of the nation this year, up from US$100 million last year, said Winfried Vahland, chief executive officer of Volkswagen China Group.

Volkswagen is negotiating with 50 to 70 parts producers in China and one-third of the talks have entered into a substantial stage, Vahland said.

Spare parts from China are 20 to 30 per cent cheaper than in Germany, he said, "But they must meet Volkswagen's technology and quality standards."

Last June, the carmaker opened its first China material-testing centre in Beijing to accelerate the approval process of spare parts purchased in China. Previously, all the testing was carried out in Germany.

Vahland said China's parts industry is on the right track and it will continue accelerating.

Volkswagen now has more than 800 parts suppliers in China.

China's spare parts exports have been climbing rapidly in recent years as a result of mounting global automakers choosing to source and the nation's increasing vehicle shipment overseas.

Industry statistics show the nation exported US$10.9 billion of key auto components and spare parts last year, up 34 per cent from 2004.

Meanwhile, China's vehicle exports skyrocketed by 158 per cent year-on-year to US$1.6 billion.

The nation is on the road to be one of the world's biggest spare parts manufacturing bases. All of the world's major parts makers have built plants in China. There are more than 1,000 foreign-funded companies in China producing spare parts.

China has set an ambitious target to export US$35-40 million worth of spare parts annually by 2010, according to industry sources.

However, Shen Ningwu, deputy secretary-general of China Association of Automobile Manufacturers, said the nation's parts industry is still plagued by many fragmentation, lack of strong independent development and shrinking profits.

There are more than 4,000 spare parts producers in China now and most of them are too small to be competitive internationally.

Profits of China's spare parts sector have been tumbling in recent years due to carmakers' price wars and growing material costs. Statistics indicated the spare parts sector reported 20 billion yuan (US$2.5 billion) in profits last year, down 11 per cent from 2004.

(China Daily 02/28/2006 page10)