Worsen condition of auto parts industry

Recently, there were two major events for China's auto parts industry.

One was The Measures for the Administration of Import of Automobile Components & Parts Featuring Complete Vehicles (The Measures for short) would never be implemented since September 1, 2009. Another was US president Obama announced it would impose a 35 percent punitive tariff on automobile and light-truck tires imported from China for three years. From the perspective of China, the two major events are closely related with its auto parts industry.

There is no denying that Chinese government and enterprises have been sparing no efforts to get access and be actively accustomed to international market in order to fight back traditional perception of "Made in China". When meet difficulties we should keep calm and try to find breakthrough from ourselves. Persistence is a traditional virtue of Chinese and can help China get through difficulties many times. In the process of accepting world and subjectively place ourselves in the world, we must know what we have done and where the problems are.

Management tools for importing foreign cars have been adjusted by Automobile Industrial Policy so as to adapt ourselves to WTO agreements and successfully enter the international market.

Before China's entry into WTO, 1994 version of Automobile Industrial Policy ruled that the localization rate of joint ventures in China should reach 40% in the first year, 60% in the second year. Actually policies listed above have restricted the development of KD (knocked down) cars. In addition, the policies also promoted the localization rate of joint ventures and the development of China’s automobile industry chain. Moreover, during the development of China’s automobile industry chain, new generation of Chinese independent brands were created.

China was formally approved to join WTO on December 11, 2001. According to commitments when joined WTO, China would no longer regulate the localization rate of foreign cars imported into Chinese market. Additionally imported spare parts' proportion of entire vehicle would not be controlled. In this stage carmakers are more inclined to take the KD, developing from the initial CKD(Completely Knock Down) to SKD（Semi-Knocked Down）, and finally evolved into DKD(Direct Knocked Down).The highest annual sales of KD cars even reached 400,000 units.

2004 version of Automobile Industrial Policy emphasized using investment management and trade management together to regulate imports of foreign cars. The core of trade management is treat auto parts which can constitute the vehicle features as entire vehicle, and collect the same tariff level as entire vehicle. The Measures began to be implemented from April 1, 2005 ruling China would collect a 25% tariffs on imported foreign auto parts which can constitute the vehicle features, the same as entire vehicle. As a result, the production of KD cars gradually decreased year by year, joint ventures in China have built many factories and new models. Meanwhile, the localization rate of supply chain also climbed up and the construction of technology centers developed.

The Measures have been in dispute since it was issued .The United States, the European Union and Canada sued against The Measures to the WTO dispute settlement body in October, 2006 .Until December,2008 WTO ruled that China must abolish The Measure because it was violating the global trade rules. After nine months of negotiations, China finally agreed to abolish The Measures. However, it was The Measures that have provided good development opportunities for China's auto parts enterprises in latest four and a half years, now the living space of KD cars has been sharply reduced in China. Meanwhile, The Measures helped China to safeguard its profits in international automotive trade disputes.

For joint ventures, abolishment of The Measures can let the cost of their KD products whose localization rate are low gradually to decrease, and at the same time the introduction cycle time of their some products also will be shortened, risk of product planning and the level of fixed assets investment will be reduced, the economy of DKD is supposed to stand out. However, joint ventures also need to strengthen the local procurement of parts and components since it is a general tendency in the long run. In other words, long-range supply-chain systems can harm the joint ventures’ quick response to the market demands.

Another difficulty for local auto parts and components enterprises is the increasing amount of anti-dumping investigations from foreign countries. Since 2001 China’s autos parts products have made a great progress in world market depending on their low cost advantages. Nevertheless, at the same time countries such as US, Europe, Egypt and India also began to conduct anti-dumping investigation on China’s auto parts products, which has cast a huge shadow on Chinese enterprises’ strategy to go out .In 2008 governments across the world were hit heavily by the financial crisis so they conducted more anti-dumping investigations on Chinese cheap goods in order to stimulate their economy. Since January 2009, the number of anti-dumping investigations on Chinese goods almost reached 20. Several days ago US president Obama announced to impose punitive tariffs on automobile and light-truck tires imported from China. US government’s resistance to Chinese good may stimulate other countries’ enthusiasm of conducting anti-dumping investigations on Chinese goods. In the new round of trade protectionism, China’s auto parts enterprises are faced with more and more challenges. (Translator Qinghua)

　　See original Chinese report Please click