After China's accession to the World Trade Organization (WTO), it committed to reducing its vehicle import tariffs. As of July 1, 2006, the tariff on complete vehicles was set at 25%, while the rate for parts and components was significantly lower at 10%. This 15% difference in tax rates has acted as a powerful economic incentive, encouraging multinational corporations to shift their production of auto parts and components to China. By doing so, these companies can reduce costs and take full advantage of the favorable trade environment.
Multinational automotive giants have been increasingly investing in China, driven by the industry’s vast growth potential. According to international standards, the ratio between vehicle production and parts supply should be around 1:1.7. This suggests that the Chinese market offers substantial room for expansion, making it an attractive destination for global auto parts manufacturers. Many foreign firms have established joint ventures or wholly-owned subsidiaries in China, aiming to capitalize on the country’s rapid auto industry growth. These companies are not just manufacturing; they are also investing heavily in research and development, with many setting up technology centers in China.
For example, Delphi, the largest U.S. auto parts supplier, operates 14 manufacturing plants in China, with total investments exceeding $450 million. It produces over 40 different product categories. Bosch, one of the first major component suppliers to enter China, has established ten representative offices, four trading companies, seven wholly-owned enterprises, and ten joint ventures. Similarly, Japanese automakers' entry into the Chinese market has prompted their suppliers to follow suit, relocating production bases to China to better serve local demand.
From a global perspective, many international auto parts companies are moving toward independent, large-scale operations. Companies like Delphi and Visteon have separated from their original parent companies, such as General Motors and Ford, evolving into global component providers. The strong growth of China’s auto market and the cost advantages of its labor and production base make it feasible for foreign firms to transfer their manufacturing operations to China.
According to recent data, nearly 500 foreign-invested auto parts companies operate in China. While most currently serve domestic demand, as their production scale and R&D capabilities expand, more of their products are being exported to international markets. This trend is expected to continue, further integrating China into the global auto supply chain.
At the same time, under pressure to cut procurement costs, multinational companies are shifting their sourcing strategies toward China. Many top automakers have set up global procurement centers in the country, with over $5.5 billion in spare parts purchases annually. Domestic companies like Wanxiang and Fuyao Glass have also become integral parts of this global procurement network.
Market research indicates that with major suppliers like Delphi, Visteon, TRW, and Lear investing heavily in China, the country’s auto parts industry is projected to grow by 165% by 2010. Its share of the global market is expected to reach around 800 billion yuan, making China the largest investment destination in the world for auto parts manufacturing.
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