The new automotive industry development policy has sparked optimism among many, who believe it paves the way for a bright future for the auto parts sector. However, as is often the case, there remains a significant gap between aspirations and reality. While the policy serves as a guideline for the industry's direction, the practical implementation still faces numerous challenges.
Looking back at the 1994 "Auto Industry Industrial Policy," it clearly emphasized localization, setting a target of 40% local content for car production. In contrast, the new policy does not explicitly mention a specific localization rate. This has raised questions: Does this mean that the localization requirement has been relaxed? According to senior expert Chen Guangzu, the answer is no. The new policy still enforces the concept of localization by treating the vehicle as a whole. It sets standards for the composition of vehicles, and if those are met, the product is considered an entire vehicle, subject to import tariffs. This approach, similar to practices in the U.S., aims to maintain a level of local manufacturing. But while the rules are clear, their execution remains uncertain.
Historically, achieving localization was a long process. For example, it took seven years for the Santana model to reach 100% localization after its initial introduction. During this time, Chinese parts companies gradually improved their skills through technology transfer and learning from foreign suppliers. This was originally intended to foster technological exchange. However, today’s situation seems to have shifted. Now, when a new car is introduced, it often reaches the market within months, with manufacturers focusing more on short-term profits than long-term technological advancement.
Although China’s auto parts industry has made significant progress, the question remains: how much localization can be achieved in such a short time, and what real knowledge can manufacturers gain? The new policy highlights the importance of developing independent R&D capabilities in the parts industry. Article 30 of Chapter 8 emphasizes that auto parts companies should actively participate in the development of main components, aiming to build system-level capabilities in key areas.
In the global auto industry, foreign suppliers typically engage in "proactive purchasing" or "simultaneous development," joining the design process early and ensuring their products align with the vehicle’s development. This reduces time-to-market and enhances efficiency. For Chinese parts companies, however, participating in such processes—especially with imported vehicles—is extremely challenging. Foreign automakers often maintain long-standing relationships with established suppliers like Delphi, Bosch, and Michelin, making it hard for domestic firms to break in.
Moreover, Chinese parts manufacturers still lag behind in high-value components such as engines, transmissions, and fuel injection systems. Most can only supply low-value items like interior parts and audio systems. As a result, they remain secondary or tertiary suppliers rather than full system integrators.
To bridge this gap, Chinese companies need to collaborate closely with domestic automakers like Brilliance and Chery, which rely heavily on local suppliers due to limited technical capabilities. Two main strategies can help improve R&D capabilities: forming joint ventures with foreign parts companies to learn advanced technologies, or producing low-end, cost-effective components that can secure market share over time.
The new policy also encourages the growth of private auto parts enterprises by promoting specialization, mass production, and modular supply chains. This is a positive step, as private companies are expected to become the backbone of the industry. However, several obstacles remain, particularly in terms of financing and market access.
China’s investment and financing system is still underdeveloped, making it difficult for private firms to secure funding from formal institutions. Many resort to informal methods, which limits their growth potential. Additionally, private parts companies face regulatory constraints, as the economy is still transitioning from a planned to a market-based system. In this environment, government support often plays a crucial role in determining a company’s success.
For private parts enterprises to thrive, the government must introduce supportive policies and create a more favorable business climate. Otherwise, these companies will continue to struggle in an increasingly competitive market.
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