Domestic parts industry reproduces foreign investment boom

According to data released by relevant authorities, over 70% of the world's top 100 automotive parts suppliers have established a presence in China, actively engaging in business operations. More than 1,200 foreign-funded enterprises are currently manufacturing auto parts and components within mainland China. In 2006, the total sales revenue generated by auto parts companies nationwide reached 403.5 billion yuan. Among this, foreign-invested (either controlled or wholly-owned) component products dominated the market, holding the majority share, while domestic components accounted for only 20% to 25%. Since the implementation of the "Administrative Measures for the Import of Auto Parts That Constitute the Characteristics of Complete Vehicles" in April 2005, foreign auto parts companies have shown increased interest in investing in China. According to reports, more than 90 foreign firms signed up for investment and cooperation in that year, with total agreed investments reaching 4 billion U.S. dollars—an increase of 3.2 times compared to 2004. These companies included major global players such as Delphi, Denso, Sumitomo, Dana USA, Valeo from France, and Fujitsu Electronics from Japan. Although the boom continued for two years, there were notable shifts in the strategies of these foreign firms. First, there was a shift from sole ownership to joint ventures. In the first half of 2006, multinational auto parts companies invested a total of 1.3 billion yuan in China, focusing on areas such as engines, chassis, gearboxes, and automotive electronics. Over 90% of new projects were structured as wholly-owned enterprises. However, by 2007, foreign firms began to favor joint ventures with local Chinese partners, based on their two-year experience in the market. Second, the trend of integrating manufacturing with research and development support became more prominent. To quickly enter the Chinese auto parts market and reduce production costs, companies focused on localizing their R&D efforts. With the rapid growth of China’s automotive market, international auto parts giants adopted localized strategies to maintain their competitive edge. This involved offering more cost-effective solutions to vehicle manufacturers, as prices for parts continued to decline. These initiatives were largely driven by R&D centers established by foreign firms within China. As a result, domestic auto parts companies—previously known for their cost advantages—are now facing significant challenges in maintaining their market position.

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