cens logo

Official Policy Changes to Shake Ground Under China's Auto Parts Sector

Apr 22, 2008 | By CENS

Various events that have transpired in China over the past few months hint at the beginning of structural changes that are likely to force many exporters of automotive parts in China, who already operate with relatively-slim margins, to come up with strategies more creative than mere underselling via adopting cheap labor and other cost-cutting measures. One such policy change is that the Chinese government will continue slashing the percentage of export tax refund, leading exporters to shoulder heavier operational costs. Also, several new environmental-protection policies reportedly to be formally announced this year will inevitably further burden production costs of auto parts manufacturers.


The auto parts makers and exporters may have even tougher time to stay afloat after the introduction of legal requirements for labor contract since early 2008, measures that aim to strengthen labor welfare. The fact is that thousands of companies, which had been staying in the game via generating paper-thin margins mostly accomplished by hiring low-cost labor, can hardly survive the increased labor costs caused by the new labor contract.

The above changes and ripple-effect thus created would likely lead to changes in China's investment environment, as some industrial observers boldly predict; however the defense strategies to be adopted by the auto parts exporters would probably help, perhaps in the short term, China shed at least partially its notoriety for being a global market-share raider via supplying cheap and poor-quality products.

The above new policies would benefit China's auto parts sector in the long-term as turning out greener items is simply better for the ecology, although they would pose short-term impact on those makers in China which used to struggle for survival by earning slim profit margins.

2007 Exports

No matter how China's auto parts industry would change in the future, it maintained remarkable export growth in 2007 despite the weakening international market. In 2007, the annual auto parts exports hit a record high of US$29.497 billion, accounting for 72% of the total exports of China's automobile industry. According to the Machinery & Electric Products Export Guidance in China, outbound shipment of the four major categories of engines, auto parts & accessories, tires, and other auto-related products amounted to US$1.185 billion, US$15.594 billion, US$6.243 billion, and US$6.475 billion in 2007, respectively up 53.41%, 35.38%, 36.83%, and 37.8% from the previous year.

A noteworthy phenomenon behind the impressive overall auto parts export is the soaring shipment of certain key components such as shock absorbers, transmissions, air bags, and drive axles, which each exceeded US$100 billion in annual exports in 2007-shock absorbers (US$366 million, up 1.1 times), transmissions (US$262 million, 2.2 times), air bags (US$192 million, 1.1 times), and drive axles (US$122 million, 1.7 times). Such performance shows the potential of China's auto parts makers to supply products made with higher technology.

2007 Imports

Comparatively, auto parts imports grew at a slower pace with an annual amount equivalent to only a half of exports-roughly US$15.2 billion in 2007. Auto parts took up 59% percent of the annual imports of China's auto industry in 2007.
Among the four major categories of engines, auto parts & accessories, tires, and other auto-related products, the last category was the only exception which recorded a decrease in imports of 2007. Imports of this category dropped 7.22% in 2007, worth US$727 million only.

Whereas, the other three maintained steady individual growth-engines up 24.69% (US$1.533 billion), auto parts & accessories up 15.45% (US$12.821 billion), and tires up 5.37% (US$205 million).

Imports of key components, however, grew faster than exports, reflecting the rapid growth of the auto-making sector in China where most still rely on imports for key components. In 2007, imports of engines nearly doubled from the previous year while air bags, drive axles, and shock absorbers all recorded more than twice the growths, with an annual import amount of US$335 million, US$138 million, and US$202 million, respectively.

WTO Ruling

China, however, is considered taking protective measures to curb imports of auto parts. In mid-February, China suffered its first defeat at the World Trade Organization (WTO) where the Dispute Settlement Panel ruled that China's minimum local content requirement of 60% for home-produced cars violated free trade principles. In China, a carmaker assembling a car with more than 40% imported parts would be subject to the same high tariff as a ready-to-drive import.

It's in 2004 when the EU teamed up with the U.S. and Canada in filing a complaint to WTO, saying that China broke the rules by stipulating the minimum local content 60% for a locally-made car. The three trade powers argued that "It discourages automakers from using imported parts for vehicles they assemble in China." As a result, they said, "foreign car parts makers had an incentive to shift production to China, costing Americans, Canadians and Europeans their jobs."

After more than three years of investigation, the dispute settlement panel found that the Chinese measures "put imported auto parts at a disadvantage to domestic counterparts." The panel, in its final message to Beijing early this year, requested China to revise its practices that violate free trade rules. Despite the decision being only an "interim ruling," no panel has ever changed its findings for its final decision.

Not Intended to Discriminate

China, which can appeal, defended itself by saying that the 60% minimum local content requirement for home-produced cars aims to prevent tax evasion by makers who import whole cars for parts to dodge higher tariffs. Though China claimed that its local-content requirement does not intentionally discriminate foreign auto parts suppliers, it may face retaliatory sanctions if it fails to rectify its rule according to WTO principles.

After the ruling is finalized this year, the WTO will give Beijing a reasonable grace for legislative changes. The WTO rule is widely expected to urge China to further widen its doors to foreign auto parts, and at the same time may motivate China's auto parts makers to gradually wean itself from excessive reliance on imported key parts by upgrading and adopting advanced technologies.

Despite such "protective measures," China continued to import increasingly more critical components in recent years: The U.S., for example, exported some US$840 million of auto parts to China in the first nine months of 2007, up 38% from the same period one year earlier, according to the U.S. Commerce Department.


Industry Reports

K, the leading global plastic and rubber trade fair (Photo courtesy of Messe Düsseldorf/ctillmann)

K, The World's Leading Trade Fair for Plastic and Rubber Industry

Jul 24, 2020

2019 K Show, the leading global trade fair for the plastics and rubber industry, had been held in Düsseldorf on 16-23 October, 2019. There were 3,330 exhibitors from 63 nations proved impressively: plastics continue to be an innovative, indispensable material. But they also unanimously underscored the necessity of having operational circular economies along the complete material chain and to this...


Photo courtesy of CENS

Digital Healthcare & Technology at the Heart of Las Vegas CES 2020

Jul 14, 2020

■ Hubert Chih The number of healthcare exhibitors at the 2020 CES in Las Vegas increased significantly by 23% from 2019. According to the analysis and report by the CES organizer, digital healthcare and technology were the focus in the healthcare exhibition. In addition to the continued expansion of healthcare coverage, the reduction of healthcare costs, the improvement of effectiveness and th...


The Taiwan Hardware Show sees global buyer attendance. (Photo provided by Kaigo Co.)

Taiwan's Hand Tools Seeking Opportunities Amid Global Crisis

Jul 10, 2020

Due to the COVID-19 pandemic sweeping the globe, most of the international hardware shows slated for this year has been moved to 2021. However, as Taiwan’s efforts combating the new virus has proven to be successful, the 2020 Taiwan Hardware Show (THS) will continue as scheduled, beginning on Oct. 13 and ending on the 15th at the Taichung International Exhibition Center, thus becoming the only sh...



Industry In-Focus

SINOSTEEL Corporation: Rising price in Steel</h2>

SINOSTEEL Corporation: Rising price in Steel

Jun 05, 2020

Brazil’s new crown pneumonia epidemic has rapidly increased. Brazil’s Vale, the world’s largest iron ore producer, is facing an out-of-control impact. The market is worried that iron ore production and sales will be affected. new highs. Experts from Sinosteel (2002) evaluated that steel prices will rise steadily under the effect of rising costs, with a promising outlook. According to a legal p...


Apple Invests Millions in LED Plant in Taiwan</h2>

Apple Invests Millions in LED Plant in Taiwan

Jun 01, 2020

Apple is considering to invest over US$330 million in a factory in northern Taiwan to manufacture both LED and micro-LED displays for its iPhones, iPads, MacBooks, and other new devices. Apple is teaming up on the new factory with Epistar, Taiwan's top LED producer, and Taiwanese LCD panel maker, AU Optronics. The plant will be located in the Longtan branch of the Hsinchu Science Park and Appl...


Taiwan Machinery Was Applauded in COVID-19</h2>

Taiwan Machinery Was Applauded in COVID-19

May 18, 2020

What the epidemic showed was the amazing flexibility of Taiwan's machine tool industry. Taiwan, which has allowed the semiconductor industry to specialize in the past, has finally realized that these machine tool industries with amazing strength are the "invisible champions" of Taiwan's economy. In early February, three companies -- Habor Precision, Tongtai Machine & Tool and Taiwan Takisawa -...



Supplier News

With professional technics and rigorous quality control, Kung Hsing gains high-reputation in the industry</h2>

With professional technics and rigorous quality control, Kung Hsing gains high-reputation in the industry

Jul 23, 2020

Kung Hsing Plastic Machinery Co., LTD., founded in 1972, is the brainchild of the company President Tsai Chin-lien’s over 48 years of experience in designing and producing extrusion machines. The firm stood by its belief to uphold integrity and offer the best quality and services, eventually becoming a leader in the extrusion machinery industry in Taiwan. Kung Hsing currently has two factories; t...

KUNG HSING PLASTIC MACHINERY CO., LTD.


Wood-Imitation Pellets and Profiles (Photo courtesy of INTYPE)

INTYPE Follows World Trends for Operation: Environmentally Friendly Manufacturing, Sustainability and Circular Economy

Jul 21, 2020

■ Tseng Lung-nan Intype Enterprise has built up 55 years of experience in producing extruders, though the firm is placing greater consideration on rapidly degrading of the global environment. In the past 20 years, Intype has become an active contributor to building up a global ecosystem, enabling them to reuse the products manufactured by their own extruders and avoid further waste. The firm t...

INTYPE ENTERPRISE CO., LTD.


YFCM Carbon Fiber Driveshaft Lauded in the field of Modified Cars for its Flexibility </h2>

YFCM Carbon Fiber Driveshaft Lauded in the field of Modified Cars for its Flexibility

Jul 14, 2020

■Hsiao Yung-le Yifeng Technology Co., Ltd. specializes in the research and development of carbon fiber transmission shafts and the manufacture of carbon fiber related products.The carbon fiber material has the characteristics of lightweight, impact resistance, fatigue resistance, and corrosion, and chemical stability is quite high. The product type is increasing in the extensive range with an ...

YI FENG COMPOSITE MATERIAL TECHNOLOGY CO., LTD.



Insiders' Views

Caption: Pictured from front row, third right, Changhua County Government Economic Affairs Department Director Liu Yu-ping, County Magistrate Wang Huei-mei, Secretary Chen Bo-tsun pose in front of the exhibition booth. (Photo provided by CHCIA)

Changhua County Government Shores up Biz-Matching to Global Buyers

Nov 18, 2019

■Yang Feng-Chun In a bid to assist manufacturers in Changhua County to expand their market reach overseas against severe competition in the globalized market, Changhua County Government has been an active player in pushing for a makeover and innovation of its local small and medium-sized enterprises. This is done in hopes of establishing stronger connection with international markets. An ex...


Paul Master offers high-quality chassis and engines parts for passenger cars, trucks, and industrial trucks. (Photo courtesy of Paul Master)

Paul Master Builds Reputation with Auto Chassis and Engine Parts

Nov 18, 2019

Founded in 1980, Paul Master Auto Parts Co. is headquartered in Taiwan, a professional manufacturer of chassis and engines parts for passenger cars, trucks, and industrial trucks including forklifts. General Manager Terry Liang said the company has its own professional design department, which provides customized products and specifications for global buyers, including automobile steering and...

PAUL MASTER AUTO PARTS CO.


Nan Hoang Traffic Instrument Co., Ltd.</h2><p class='subtitle'>Taiwan First brakes Technology Co., Ltd. </p>

Nan Hoang Traffic Instrument Co., Ltd.

Taiwan First brakes Technology Co., Ltd.

Sep 04, 2019

Nan Hoang Traffic Instrument Co., Ltd is one of the major manufacturers of automobile friction materials in Taiwan and globally. Chairman Austin Cheng has implemented the double-arrow strategy this year - own brand of “YangPo” is adopted to focus on global channels while the “NHC brand focuses on improving market shares in global markets, such as Europe, America, Asia, Australia, and the Middle E...



Exhibition Highlights

Koelnmesse (Beijing) Co., Ltd.

Announcement on Postponement of China International Hardware Show 2020 (CIHS 2020)

Jul 10, 2020

In view of the continuous spreading of COVID-19 all over the world and the latest epidemic prevention requirements of China and the government of Shanghai, in order to guarantee the health and safety of exhibitors, purchasers and professional visitors, China National Hardware Association and Koelnmesse have prudently decided to postpone China International Hardware Show 2020 (CIHS 2020) from Augu...


Automechanika Shanghai 2020 creates channels for cross-sector collaboration</h2>

Automechanika Shanghai 2020 creates channels for cross-sector collaboration

Jun 16, 2020

This year, Automechanika Shanghai continues to serve the entire automotive value chain by offering opportunities for information exchange, marketing, trade and education. Both vertically and horizontally, from OE, vehicle production to the aftermarket, it incorporates all elements of manufacturing, supply networks, services, new business models and information technology. Companies across the...


Messe Frankfurt (Shanghai) Co Ltd

CAPAS defers to 2021

Apr 20, 2020

Following the Chinese Government’s initiatives to prevent and control the COVID-19 outbreak, the organisers of the Chengdu International Trade Fair for Automotive Parts and Aftermarket Services (CAPAS) have announced the defer of the show’s 2020 edition. The fair, originally scheduled from 21 to 23 May 2020, will now be held from 20 to 22 May 2021. In China, the State Council issued an announc...