[YesAuto Industry] In recent years, the accelerated expansion of foreign-funded parts and components companies in China has shown distinctive features. They have taken advantage of capital and technology to occupy an important position in China's parts and components manufacturing industry. Driven by the development of new technologies, mainstream international component companies have gradually increased their investment in China. However, the changes in the global economic and trade environment have also cast a shadow on the auto industry. Capital is profiting. Will the international mainstream auto parts companies shake their confidence in the largest auto market?
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1. After years of layout, among the total number of auto parts companies above designated size in my country, international mainstream parts companies account for more than 20%, with more than 2500. New energy, autonomous driving and other new technologies have become the main areas of investment by foreign companies in China.
2. The huge market potential is the main reason why foreign companies increase their investment in China. Secondly, a complete industrial system and continuous favorable policies have also created a good business environment.
3. The economic and trade frictions between China and the United States have generally positive effects on China's attraction of foreign investment. International parts companies hope to increase the proportion of revenue from their business in China through deep localization.
●The investment layout of international parts companies in China
Since the entry of international parts and components companies into China, they have been actively deepening the localization of China and continuously improving their investment and presence in the Chinese market. By 2007, 70% of the world's top 100 auto parts companies had established factories in China, and more than 1,200 foreign auto parts companies had invested in China. In addition, according to incomplete statistics, the total number of auto parts companies in my country currently exceeds 100,000, and there are more than 12,000 enterprises above designated size (companies with annual main business revenues of more than 20 million yuan), and more than 20% of them are foreign capital. More than 2500 enterprises.
Nowadays, autonomous driving, new energy, and intelligent networking have become the new development direction of automobiles, and parts and components companies are also strengthening their layout in new fields. Especially at the Shanghai Auto Show in April this year, the new technology products of parts and components exhibited around electrification and automation collectively shine, and it can be seen that the focus of the enterprise is tilted towards future technology. Taking Schaeffler as an example, it has become a reliable partner of car companies with its expertise in the overall power system (engine, chassis, gearbox and auxiliary devices). Schaeffler’s judgment on the company’s business focus in the future is, ” Ten years ago, 90% of our business was in internal combustion engines. Now we think that almost 60% is in traditional business, and 40% is in electrification and intelligence. In the near future, 60% of our business is in electrification and intelligence, and 40% Stay in the traditional business.”
|International mainstream parts and components companies have invested in China in recent years (partial)|
|enterprise||Investment amount|| project
|Continental Group||28 million euros||Anhui Wuhu Powertrain Project||Transmission system products, including sensors, actuators, fuel and exhaust gas treatment components||Completed and put into production in the third quarter of 2019|
|–||Changzhou, Jiangsu, and Sichuan Chengfei established a joint venture company||Production of 48V battery system||Started production in 2018|
|280 million yuan||Chongqing R&D Center||Automotive electronic product development, including body-level powertrain||Put into operation in March 2019|
|Valeo||210 million yuan||Chongqing production base||Mainly produce car lights||Production in early 2019|
|100 million yuan||Jiangsu Changshu New Energy Automobile Company||Production of automotive drive motors and inverters||Opened in October 2018|
|1 billion yuan||Jiangsu Changshu New Energy Automobile Company Powertrain Phase II||
Production of “three-in-one” electric vehicle drive assembly (motor, electric control, inverter)
|Signed in October 2018|
|ZF||90 million USD||Jiangsu Zhangjiagang steering factory||Electric vehicle power steering system||Started production in April 2019|
|US$150 million||Zhejiang Hangzhou Electric Drive Base||Electric drive product production/sales||August 2018 investment|
|Bosch||275 million yuan||Production Base of Multimedia Division in Wuhu, Anhui||
On-board information system, digital instrument panel and interconnected control unit
|Started production in April 2019|
|770 million yuan||Production base of intelligent booster in Nanjing, Jiangsu||Production of smart booster iBooster||Started production in April 2019|
|–||Jiangsu Wuxi Battery Industrialization Project||48V hybrid battery system||Groundbreaking in March 2018|
|Anbofu||–||Shanghai R&D Center||Fully automatic driving technology research and development and application development||Established in 2019|
|Magna||200 million yuan (magna holds 49.9% of the shares)||Huayu Magna Electric Drive Joint Venture||Electric vehicle electric drive system assembly||Production in 2020|
|Matsushita||2.96 billion yuan||Liaoning Dalian Battery Factory||Electric vehicle car prismatic lithium battery||Mass production in March 2018|
|Source: Public information; Tabulation: Auto House Industry Group|
The focus on new technologies can also be seen from corporate investment projects, and the Chinese market is still the focus of corporate development. Bosch's total investment in China in 2016 reached 4.9 billion yuan, and by 2018 it had climbed to 7.8 billion yuan. In the past few years, ZF's total investment in China has exceeded one billion euros (nearly tens of billions of yuan).
Generally speaking, the investment in new technology by parts and components companies will lead car companies by 5 years or even longer. For example, autonomous driving technology may be a node in 2025, and most companies in the industry promote that they will gradually achieve a high degree of automation from 2025. drive. In order to seize the technological commanding heights in the new competition to ensure that they can meet the needs of OEMs, international component companies have launched advanced layouts in China. After all, they are also faced with the perfection of regulations and infrastructure.
● Investment in China market considerations
The world's largest auto market is the main reason for attracting international auto parts companies to invest in China. my country's current auto parts manufacturing industry has annual sales of about 4 trillion yuan. In the past, foreign-funded enterprises quickly occupied an important share of China's auto parts market by relying on their advantages in technology and capital. Although parts and components companies with a foreign investment background (sole proprietorship/joint venture) only account for about one-fifth of the number of large-scale enterprises, their market share is more than 70%. Especially in related high-tech fields such as automotive electronics and engines, the market share of foreign-funded enterprises has even reached 90%.
Under the development trend of intelligence, connectivity, and electrification, the scale of the automotive electronics market will also rise rapidly, which also tests the technical strength of enterprises in this area. International parts companies also rely on high technology and capital to be able to get a bigger “cake” in the future.
In addition to the huge market, another major advantage of China lies in its complete industrial system. China is the only country in the world that has all the industrial categories in the joint industrial classification. China has 41 major industrial categories, 191 medium categories and 525 sub-categories. All industrial categories in the United Nations Industrial Classification can be found in China.
Although high-precision products such as chips are still at the low end in China, the complete industrial category pays more attention to “all”. From the perspective of economic development, a complete industrial system means that capital can easily find local manufacturers, which greatly reduces costs, including tariffs and transportation costs, and China's transportation industry is also very developed. For example, lighters have almost no technical content, but China's annual output accounts for more than 2/3 of the world. This is something that has no technical content, but some countries may not be able to do it, because it needs industrial clusters composed of plastics, chemistry, and metal industries.
Like autonomous driving technology, China’s 5G strength naturally does not require too much words. 5G is similar to the “blood” of autonomous driving. AI (artificial intelligence) is like the “brain” of autonomous driving. Foreign companies can find the best in China. Good partner. Autopilot is inseparable from the camera. There are also strong local suppliers in the upstream of the camera industry chain. The lens is the core component of the camera. At present, powerful manufacturers such as Sunny Optical, United Optoelectronics and so on. Since 2012, Sunny Optical's automotive lens shipments have been the world's largest. Naturally, many foreign-funded enterprises and domestic manufacturers have developed close cooperation in various fields such as batteries, autonomous driving, and shared travel.
When talking about China’s ability to attract foreign investment, Fu Yifu, a senior researcher at Suning Financial Research, mentioned that the first is the continuous growth of China’s economy; the second is the completeness of the industrial system; and the third is the favorable policies.
During the two sessions this year, China reviewed and passed the “Foreign Investment Law of the People's Republic of China”, which will be implemented on January 1, 2020, whether it is “national treatment”, “negative management list system”, or “property protection.” All other aspects will bring greater benefits to foreign investment. In addition, the liberalization of vehicle joint venture share ratios is also in progress. Eventually, the restriction on the foreign shareholding ratio of passenger vehicles will be lifted in 2022, and at the same time the restriction of no more than two joint ventures will be lifted. Enterprises will have a greater right to speak, and foreign auto parts companies will naturally benefit a lot.
But on the other hand, although China has the most complete industrial categories, how to break through the high-end is also a problem. Policies are becoming more and more open to foreign-funded parts and components companies, and the challenges faced by Chinese local companies are also “big Yalishan”.
● What is the impact of Sino-US trade friction
From a geopolitical point of view, the United States has defined China from its previous “defective partner” to “the only strategic competitor” in its national strategy. Trump's coming to power has also made the economic and trade relations between China and the United States more tense, extending from higher tariffs to more stringent high-tech restrictions.
There are rumors about whether foreign investment will withdraw from China because of Sino-US economic and trade frictions. Miao Wei, Minister of the Ministry of Industrial Information Technology, once mentioned to the media, “In fact, some have withdrawn from China, but there are still others who continue to invest in China.”
From the perspective of the entire introduction of foreign capital, according to statistics from the Ministry of Commerce, my country's actual use of foreign capital in 2018 reached 885.61 billion yuan. Among them, the foreign investment in the manufacturing industry increased by 20.1% year-on-year, accounting for 30.6%. In addition, according to the latest statistics from the Ministry of Commerce, from January to April 2019, there were 13,039 newly established foreign-invested enterprises nationwide, with actual use of foreign capital of 305.24 billion yuan, a year-on-year increase of 6.4%.
Then, from these two sets of data, it can be seen that although the trade relationship between China and the United States has become more tense than before since 2018, the Chinese market is still favored by capital and still has a good investment environment. Capital is extremely risk-averse. In the 1970s and 1980s, China and Vietnam had military frictions on the border. Vietnam missed the opportunity of industrialization because of this factor. Capital was reluctant to go to risky places.
From the perspective of the auto parts manufacturing industry, what are the plans of international mainstream auto parts companies under the tense economic and trade relationship?
In the past five years, Bosch's sales revenue in the Chinese market has tripled, with a cumulative total of over 40 billion euros. Bosch Group Chairman and CEO Volkmar Denner told the media recently that Bosch will also continue to increase investment in China, because this is in line with Bosch’s long-term development strategy, and China’s new round of opening-up policies will also allow Bosch benefits.
Hyundai Mobis, South Korea's largest auto parts company, invested 5.5 billion won (approximately more than 32 million yuan) in a Chinese computer vision start-up company in March this year to seek cooperation in the field of future technology. Hyundai Mobis said, “This marks the first overseas investment of Hyundai Mobisway to promote technology cooperation in connected cars. Although the amount is small, everything has just begun.”
The Brose Group also plans to invest more than 300 million euros in China in the next three years. Brose believes that electrification, intelligence, and networking require companies to invest funds and energy in a timely manner for innovative research and development. Brose hopes to increase the proportion of sales from China in the global business from the current 20% to 30% by 2025.
ZF's sales in China in 2018 reached 6.2 billion euros, accounting for nearly 17% of global sales. ZF said that the future goal is to increase the proportion of sales in the Asia-Pacific region to 30%, and the Chinese market is the company's development focus in the Asia-Pacific region. Investing in local production capacity, improving localized R&D capabilities, and strengthening the local travel ecosystem are the focus of ZF's next phase of work.
Full text summary:
On the other hand, almost all of China's parts exports have been included in the tariff ranks. The data shows that about 25% of China's auto parts are exported to the United States, and the comparative advantages of Chinese companies tend to be labor-intensive products, with wheels, brakes, and body parts being more advanced. For international parts companies, deepening Chinese localization is still their development strategy, and their comparative advantages are reflected in powertrain, automotive electronics and other technologies and capital-intensive products. This phenomenon seems to be in a short period of time. It is difficult to change.