It appears that many people believe the new "Automotive Industry Development Policy" has opened up a promising future for the auto parts sector. However, as with any idealistic vision, there is often a gap between what is envisioned and what is actually achieved. The new policy serves more as a guideline than a concrete roadmap. When we look at the real situation, the gap is not only significant but also widening.
Back in 1994, the "Auto Industry Industrial Policy" specifically emphasized localization, setting a clear target: a 40% localization rate for car production. But the new industrial policy does not explicitly mention this figure or set a specific goal. Does this mean that the localization rate has been liberalized? According to senior expert Chen Guangzu, the answer is no. He explains that the new policy still indirectly enforces the localization rate by classifying vehicles as complete units, thus maintaining control over import duties and local content requirements.
This method, used by developed nations like the U.S., aims to ensure domestic production. However, while the rules are clear, their implementation remains uncertain. It took nearly seven years for the Santana model to achieve 100% localization after its introduction, highlighting the long journey of technological learning and development for Chinese auto parts companies.
Today, the situation seems to have shifted. New models are introduced quickly, and manufacturers are more focused on short-term profits rather than long-term technology transfer. Although China's auto parts industry has grown significantly, it’s hard to see how much localization can be achieved in just a few months, or how much real R&D can take place.
The new policy emphasizes the importance of building independent R&D capabilities in the parts industry. Article 30 of Chapter 8 encourages auto parts companies to actively participate in the product development of main vehicle manufacturers, aiming to develop key systems and technologies. This aligns with international practices where suppliers are involved early in the development process, ensuring synchronized production and faster time-to-market.
However, for Chinese parts companies, participating in such processes—especially with imported vehicles—is extremely challenging. Foreign automakers often work closely with established global suppliers like Delphi, Bosch, and Michelin, making it difficult for local firms to break into the supply chain. Most Chinese companies still produce low-value components like interiors and audio systems, while high-value parts such as engines and transmissions remain dominated by foreign firms.
To catch up, Chinese parts companies need to collaborate with domestic automakers like Brilliance and Chery, which rely heavily on local suppliers due to weaker technical capabilities. Two strategies are key: forming joint ventures with foreign suppliers to learn advanced technology, or focusing on low-end, low-margin products that can secure market share and long-term stability.
Opportunities for private enterprises are also growing. The new policy encourages the development of private auto parts companies, promoting specialization, mass production, and modular supply chains. While private firms have the potential to become the backbone of the industry, they face significant challenges—particularly in access to financing and market entry.
China's investment and financing system is still underdeveloped, making it hard for private companies to secure funding from formal institutions. Many rely on informal methods, which limit their growth potential. Additionally, government regulation and macro-control still play a major role, favoring state-supported enterprises over private ones.
In conclusion, while the new policy sets an ambitious vision, the path to achieving it is complex and full of obstacles. For the auto parts industry to truly thrive, both public and private sectors must work together, supported by stronger policies and a more open market environment.
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