Auto Parts Sector Needs to Up Gear

China's auto component producers have been urged to boost product quality and technological development through co-operation with foreign automakers to be more competitive and better integrate into the global distribution network.

The government is encouraging domestic auto component firms to absorb more foreign experience by setting up joint ventures or obtaining more technology transfers.

This will help them acquire a solid footing both at home and broad for when China joins the World Trade Organization (WTO), said Gan Zhihe, director of the Bureau of Investment and Development Planning with the State Economic and Trade Commission.

The auto components sector is the most fragile part of China's auto industry and will face the stiffest challenge from foreign products that will enjoy much lower import tariffs after China joins the WTO, experts said.

Many of China's auto parts producers have been helped out by the government in the past, said Zhang Jianwei, vice-director of the China Automotive Technology & Research Center.

Zhang joined Gan at a seminar held Tuesday in Beijing about the auto component industry.

The automotive industrial policy in China stipulates that automakers should use more homemade components in their vehicles.

However, according to China's WTO agreement with the United States, the import tax for auto parts will be reduced from the current average of 35 per cent to 10 per cent in 2006.

And the requirement for a high ratio of domestically made components in vehicles will be scrapped right after China joins the WTO.

"The average price level for imported auto parts will be reduced by 20 per cent," said Zhang.

"The domestic auto components industry will face a big shock if they maintain their present development, product quality and cost level," said Gan.

The present scale for most domestic auto components producers is still too small and dispersed to be efficient, which has greatly affected their profitability and competitiveness, he said.

Experts have predicted there will be more mergers and takeovers in the sector this year.

Stronger firms should further expand business and exports to expand market shares, said Gan.

For the less competitive ones, they should find ways out either through tie-ups with domestic counterparts or by attracting foreign investment to upgrade technology and lower costs.

The government is also adjusting industrial policies to boost market competition and reduce government interference, said Gan.

"The Chinese market will attract more foreign investors when it opens up wider after the nation's WTO entry," said Zhou Min, senior manager of the purchasing department of Volkswagen (China) Investment Co Ltd.

Partnership between domestic and foreign automakers will help domestic products enter the global market, he said.

"Both sides will benefit from co-operation to secure their position in the market," he said.

Presently, there are about 1,400 auto components manufacturers in China, 500 of which benefit from foreign investment.

Their output accounted for 30 per cent of the entire auto industry in 1999, official statistics show. (China Daily)

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