Auto-parts Sector in Zhejiang, China Set to Weather Global Slump

2009/02/25 | By CENS

Nobody in the auto parts sector worldwide can escape the impact from the global recession in the wake of the financial storm, which has tightened both corporate and consumer credit lines to sap spending power all over. The fallout in the automotive sector has been sagging new car sales and resulting plant shutdowns by all the major brands as Toyota, Honda and the Big Three. The auto parts sector in Zhejiang Province, China's foremost production base as well as the largest auto-parts exporter, has also been battered. China-made auto parts exports have slackened, with the value in the first three quarters of 2008 advancing 31% to US$11.56 billion. In comparison, the auto-parts sector in Zhejiang fared modestly better than the national figure: exports advanced 34% to US$2.93 billion in the first three quarters of 2008, according to customs statistics.

Auto-parts Exports (1^{st Three Quarters 2008)}
	^{Value (US$100 M.)}	^{Growth (%)}
^China	^115.6	³¹
^{Zhejiang Province}	^29.3	³⁴

Changing Export Product-mix

Changing market conditions force suppliers to go upmarket, turning out more sophisticated and hence higher value-added items to offset soaring material prices and production costs. Some established auto-parts makers in China with annual revenues exceeding US$150 million began gradually switching to producing items with higher added-value, abandoning the opposites, by intensifying technological innovation and upgrading management caliber. And the numbers bear out such trend: exports of engines and parts jumped 74.5% to US$320 million in the first three quarters, overtaking auto-body parts to become Zhejiang Province's third-largest export auto-part category. Other higher value-added items as suspension systems and shock absorbers also saw 50%-plus export growths. In contrast, wheels, parts and other auto parts of lower added-value scored lower export growths of 22.7% and 19.8%, respectively.

Zhejiang Province accounted for one-fourth of China`s total auto-parts exports in the first three quartersof 2008. (Photo courtesy of XGM Group Co., Ltd.)

Industry Clustering Scores Rapid Export Growth

Several areas with extensive auto-parts industry clustering have emerged in Zhejiang Province in recent years, including Taizhou, Wenzhou, and Hangzhou, which boast, among other advantages, well-established availability of financial and marketing consulting and other services to auto-parts suppliers. Taizhou, for instance, has set up platforms for R&D, product testing and inspection, information exchange and personnel training, helping the local auto-parts sector to export US$380 million of products in the first three quarters of 2008, up 41.9% year-on-year.

Zhejiang`s exports of engine and engine parts in the first three quarters of 2008 came to US$320 million, replacing auto body parts as the third largest export item from Zhejiang`s auto parts industry.

Exports to Emerging Markets a Savior

With the Big Three automakers having idled plants for Jan. 2009 and American spending power compromised amid the global recession, exports of auto parts from Zhejiang to the U.S. have also slowed: reaching US$820 million in the first three quarters, up 11.2% year-on-year but 9.1 percentage points lower than that of a year earlier. In the third quarter of 2008, auto parts export value came to US$260 million, down 9.3% sequentially. However, auto parts exports from Zhejiang to the European Union and Japan grew steadily at 34.2% and 36.2% year-on-year, respectively, to US$610 million and US$190 million in the first three quarters, which seem modest considering that the growth of exports to emerging markets, such as ASEAN (Association of Southeast Asian Nations), Iran, Russia, Brazil, Ukraine, and India, all exceeded an incredible 60%.

Auto-parts industry clustering effect can be clearly seen in some major cities in Zhejiang, including Taizhou, Wenzhou, and Hangzhou etc. (Photo courtesy of Zhejiang Aborn Auto Parts Mfg. Co., Ltd.)

In the first three quarters of 2008, Zhejiang`s auto-parts exports to emerging markets grew by over 60% from a year earlier. (Photo courtesy of Wenzhou Hankon Auto Sensor Co., Ltd.)

Zhejiang to Hold Its Own in 2009

Before Obama takes office and his economic stimulus package proves its effectiveness, the tighter consumer credit lines in the U.S. and elsewhere spell tougher times for Zhejiang auto-parts export in 2009. However, the sector is expected to weather the downturn well as it still holds an enviable ace: the capacity to meet global buyers' demands for competitively-priced auto parts.

Auto-Parts Suppliers in Zhejiang With Revenues Exceeding US$150 M.
Company	Revenue (US$100 M.)	Structure	Major products	Location	2007 Ranking Amid Top 100 Chinese Auto-Parts Firms
Wanxiang Group	60.1	State-owned share-holding enterprise	universal joint, brake, bearing	Hangzhou	2
Wanfeng Auto Holding Group	5.2	Limited company	Aluminum wheels	Shaoxing	21
Ningbo Huaxiang Electronic Stock Co., Ltd.	3.9	Listed firm		Ningbo	34
RUILI GROUP	3.8	Nasdaq-listed	Valve and hydraulic pump meter	Wenzhou	37
Hangzhou Automotive Engine Plant(HAEP)	3.4	state enterprise	Diesel engine	Hangzhou	44
Zhejiang Jinfei Machinery Group, Co., Ltd.	3.0	Limited company	Aluminum wheels	Jinhua	51
Zhejiang Zhanwang Group	2.3	HK-listed	universal joint, axle	Shaoxing	62
Hangzhou Westlake Automotive Parts Group Co., Ltd.	2.3	Limited company	clutch assembly and brake shoe	Hangzhou	63
Zhejiang Asia-Pacific Mechanical And Electronic Co., Ltd.	2.1	Limited Company	Axle, auto electronics, brake	Hangzhou	71
Zhejiang Yipeng Engine Accessories Ltd.	1.7	Joint venture	Motorcycle engine	Taizhou	87