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The price advantage weakens the export of parts and components
The price advantage has long been a key factor for Chinese products, especially in the auto parts industry. The steady growth of China’s auto parts exports has largely been driven by low costs. However, this advantage is now diminishing.
Chery’s sources told reporters that in the past, local Chinese companies often won procurement contracts due to their lowest prices. But recently, there have been cases where foreign companies offered even lower quotes. Industry analysts believe that foreign firms, after setting up factories in China, can leverage cheap materials and labor, combined with their management, technical expertise, and long-term marketing strategies, making it possible for them to offer more competitive pricing than local suppliers.
So, the question becomes: What path should Chinese auto parts companies take as their price advantage weakens?
Some companies are already feeling the pressure from the appreciation of the RMB. When a reporter spoke with Chen Yujin, the Marketing Director of Yizheng Shuanghuan, he remained optimistic.
In 2007, Shuanghuan’s exports reached $50 million, a 40% increase compared to previous years, which had only seen around 10% growth. “Our export growth was very significant last year,†Chen said. “Since early 2007, our exports have entered a period of rapid growth, and we expect even higher increases in 2008.†Before 2007, Shuanghuan had been working on small-batch matching with international companies, going through a trial phase. In 2007, they received large orders from multiple global players, leading to a sharp rise in exports. Shuanghuan has now become part of the supply chain for Ford, PSA, Komatsu, Hino, and other international brands. According to Chen, their strategy has been “trying for cooperation, seizing opportunities, and continuously improving.â€
Currently, there are three main ways for Chinese auto parts companies to export: entering the foreign aftermarket, joining the global procurement systems of multinational corporations, or exporting alongside complete vehicles. Among these, the aftermarket is the largest segment, with over 80% of companies operating in this space. This market is highly price-sensitive, and Chinese products, while dominant in cost, are increasingly facing anti-dumping investigations. In 2006 alone, China’s auto parts faced more than 10 such investigations.
Some companies benefit from vehicle exports. For example, Hande Axle Co., Ltd. supplies nearly 5,000 axles to the Russian market through vehicles from Shaanxi Heavy Industry and Anhui Hualing. However, despite the rapid growth of self-branded vehicles like Chery, Great Wall, Brilliance, and Geely, these companies have not yet established local parts manufacturing systems abroad. As a result, Chinese auto parts companies still have a long way to go to compete directly with整车 (complete vehicle) manufacturers on the global stage.
China’s auto parts industry also faces many opportunities. According to statistics, multinational companies spent $50 billion on spare parts purchases in low-cost regions between 2005 and 2007, with 70% of that targeting China. Experts suggest that for companies with strong R&D capabilities, actively engaging with global procurement systems is an effective path.
Chen Yujin emphasized that increasing R&D capabilities is key to accelerating exports. Yizheng Shuanghuan invests 5% of its sales revenue into R&D annually, far exceeding the industry average of less than 2%. “Only by keeping pace with the development of international buyers can we secure cooperation opportunities,†he said. He believes that partnering with international companies not only opens up new markets but also improves the overall quality of the company.
Experts also recommend that smaller Chinese companies, unable to join multinational procurement systems, consider collaborating with foreign SMEs. Many small and medium-sized companies in Canada and the U.S. are facing rising costs and are shifting production to lower-cost regions like China and India. Chinese local parts companies should pay close attention to these trends.