Chinese Automotive Components Industry Faces Five Challenges

“Weichai, Yuchai, Tin Firewood, Method, Fuyao Glass, Wearing a Truck Wheel, Universal, Ningbo Huaxiang, Catic Parts, Air Sheng, and many other automotive electronics enterprises have achieved growth. Meanwhile, major automakers such as Changan, Brilliance, Jianghuai, Chery, and Sinotruk have independently developed components for transmission systems and more. This will serve as the foundation and cornerstone for the future development of China’s automotive components industry.” Recently, Ye Shengji, Vice Secretary-General of the China Association of Automobile Manufacturers (CAAM), stated in his keynote speech titled “Cooperation Among Component Suppliers – Striving to Expand and Strengthen China’s Automotive Components Industry” at the 2014 Annual Conference of China’s Automotive Components Industry. He emphasized that while the overall development of China’s automotive components industry is positive, the continuous expansion of the industry will reshape the competitive landscape, making the future development of Chinese-branded component enterprises increasingly challenging.

90% of Chinese-Branded Component Products Focus on the Mid-to-Low-End Segments

“The market share of Chinese-branded component companies is declining,” Ye Shengji noted at the conference. According to incomplete data, the number of component enterprises exceeds 10,000 (of which fewer than 6,000 are large-scale). Foreign-invested enterprises (45% fully foreign-owned, 55% Sino-foreign joint ventures) account for 20% of large-scale enterprises but hold over 70% of the market share. In contrast, Chinese-branded component companies have a market share of less than 30%, with 90% of their products concentrated in the mid-to-low-end segments.

Ye Shengji pointed out that in recent years, foreign and Sino-foreign joint ventures have developed rapidly, monopolizing key and core technologies, while Chinese-branded components have been pushed to the marginal positions. Among component enterprises that master key and core technologies, foreign-invested enterprises account for over 3/4 of the entire industry (40% fully foreign-owned, approximately 35% Sino-foreign joint ventures), while non-core components are mainly produced by Chinese-branded enterprises. “The technical level of automobiles is primarily reflected in key and core components, and the development of component enterprises has become the key to expanding and strengthening China’s automotive industry,” Ye emphasized. He added that foreign companies hold 90% of the market in high-tech fields such as automotive electronics and key engine components. Additionally, over 95% of core components like engine control systems (including electronic injection) and more than 90% of anti-lock braking systems (ABS) are produced by foreign enterprises.

The Components Industry Urgently Needs Top-Level Planning for Development

Due to insufficient investment in research and development (R&D), a shortage of talents, weak technological innovation, and a lack of original products, Chinese-branded component enterprises struggle to compete with leading foreign enterprises in terms of independent innovation capabilities and core product competitiveness.

Ye Shengji believes that the current development of China’s components industry is facing challenges from all sides:

1. Lack of systematic strategic planning: Currently, there is no systematic planning for the strategic transformation and modernization of the automotive components industry in China, nor are there corresponding supporting measures to encourage the R&D and production of key components. As a result, component enterprises develop in isolation, fail to form a collective force, and key components cannot be targeted for joint R&D or breakthroughs in specific technologies.

2. Mounting quality pressure: Faced with increasingly stringent national requirements for energy conservation, environmental protection, and safety, as well as rising demands from automakers for component quality, Chinese automotive component enterprises are under pressure to improve overall quality.

3. Need for synchronized development with automakers: Synchronized development with automakers has become a basic requirement for component enterprises. Looking ahead, component enterprises must not only have basic development capabilities but also advanced R&D technologies.

4. Weaknesses of Chinese-branded enterprises: Some Chinese-branded component enterprises lack a clear understanding of the industry’s characteristics, have no strategic planning, invest insufficiently in R&D, focus on short-term interests, and face shortages in R&D, production, management, and talent. All these factors widen the development gap between Chinese-branded component enterprises and foreign companies.

5. Formalistic certification implementation: To meet automakers’ requirements, all component enterprises have obtained ISO9000 and ISO/TS16949 certifications. However, some enterprises fail to fully understand the purpose of certification, implement weak management systems, and have low system operational efficiency, making it difficult to ensure consistent product quality stability.

Furthermore, for a long time, the cooperative relationship between automakers and component enterprises has been disharmonious, and their cooperation urgently needs improvement. At the same time, collaboration between component enterprises and vertically integrated industries also needs to be strengthened.

Under the new standards, China’s automotive components industry must achieve transformation and modernization to find a way forward. Ye Shengji believes that to guide the healthy development of the automotive components industry, it is necessary to study and define the industry’s future development direction as soon as possible, and formulate development plans and goals. By 2025, China should establish and strengthen a comprehensive, internationally competitive component supply system, build a nearly complete product R&D system, and basically realize the strategic transformation of China’s components industry from “manufacturing-oriented” to “innovation-oriented.”