China's local auto parts companies face challenges

Compared to the world's top 100 auto parts suppliers, China’s "Top 100 Parts" companies have a sales revenue that is more than ten times higher. However, despite this impressive figure, the reality is far from being as strong as it appears. In 2005, a ranking titled “China’s Top 100 Auto Parts” was released. According to the evaluators, the main goal of this list was to boost brand recognition for well-known Chinese auto parts companies and encourage industry restructuring. However, after two rounds of selection, they found that the actual situation did not meet their expectations. A reporter from the Financial Times interviewed several industry experts and found that, as the reviewers noted, many Chinese auto parts companies are actually much weaker than they seem. Most local firms suffer from a lack of financial strength and long-term growth potential. In other words, they are “anemic” or “oxygen-deficient,” and even more concerning, they lack the ability to generate sustainable growth — what is referred to as “hematopoiesis.” The ranking was conducted by two authoritative organizations: the China Automobile Industry Association and the National Bureau of Statistics’ Industrial Transport Statistics Division. Jiang Lei, chairman of the association, explained that the only criterion used for the ranking was sales revenue. This approach left out important metrics commonly used by foreign companies, such as profitability, social contribution, and corporate responsibility. For instance, if profit were considered, many companies on the list would likely be excluded. Many of them have high sales figures but little to no profit, with some even operating at a loss. As for other indicators, the evaluators chose not to include them, stating that Chinese companies are still far from meeting those standards. This year’s ranking marked a significant change — for the first time, foreign-owned enterprises were included in the list. When joint ventures and sole proprietorships were combined, foreign companies occupied 54 spots among the “Top 100.” This revealed that foreign-invested firms now make up nearly half of China’s auto parts industry. Shen Ningwu, deputy secretary-general of the China Association of Automobile Manufacturers, believes that the dominance of foreign companies in the auto parts sector highlights the intense competition faced by local firms. He warned that while many Chinese companies may appear large, they are not truly strong — “fat but not strong.” This imbalance is expected to widen the gap between domestic and foreign players. To put this into perspective, when comparing the top five global auto parts companies with the top five in China, the results are not clear-cut. For example, in 2005, Bosch, the world’s largest auto parts supplier, reported sales of $49.759 billion, while China’s top-ranked company, Wanxiang Group, had sales of RMB 25.1248 billion. According to incomplete data, the total sales of China’s “Top 100 Parts” companies exceed ten times that of the world’s top 100 auto parts suppliers. Yet, despite their size, these companies often lack independent innovation capabilities. Additionally, as original equipment manufacturers (OEMs) continue to pressure down procurement costs, the profit margins of these companies are shrinking, leading to increasingly difficult business conditions. One notable company on the list is a southern parts manufacturer. The Financial Times reporter spoke with its CEO, who expressed deep concerns. The company’s main customers are home-foreign joint ventures, which are planning to build their own production facilities for similar products. This development poses a serious threat to the company’s future survival. Overall, while China’s auto parts industry has grown significantly in scale, the challenges it faces — from lack of profitability to intense foreign competition — suggest that true strength and sustainability remain distant goals.

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