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The Chinese Automotive Components Market Presents Great Opportunities



Automotive Components Market

Overview

Best Prospects/Services

* Engines for motor vehicles and motorcycles;
* Auto and motorcycle casting blanks;
* Key automotive parts and components including disc-type breaking assembly,
drive axle assembly, automatic transmission box, diesel engine fuel pump, engine
admission supercharger, engine displacement control device, electric servo
steering system, viscous continuous shaft device (for four-wheel drive), air shock
absorber, air suspension frame, hydraulic tappet, and compound meter;
* Auto electronic devices and instruments (including control systems for engine,
chassis and vehicle body);
* Fuel cell technology;
* Automotive accessories;

Opportunities

China is trying to develop its automotive industry into a key industry of the national
economy by 2010. China now has 6,224 automotive enterprises, which are scattered in
five sectors: motor vehicle manufacturing (145), vehicle refitting (536), motorcycle
production (1,162), auto engine production (58), and auto parts manufacturing (4,323).
Chinese output of motor vehicles reached 5.075 million in 2004, according to statistics
from the China Association of Automobile Manufacturers (CAAM). As of Q3 2005,
China had already produced 4.5 million vehicles, a 10% rise from Q3 2004. The
automotive industry generated total industrial output value of approximately $106 billion
by Q3 2005, a 5. 7% increase year on year.

China's accession to the WTO has had a great impact on the automotive industry. By
July 1, 2006, tariffs on imported automobiles will be reduced to 25 percent, which is the
5th reduction since 2001, and tariffs on imported automotive parts will fall to 10 percent.
The gradual reduction of tariffs on automotive parts and China's agreement to eliminate
local content requirements after WTO entry, have placed domestic automotive parts
manufacturers in direct competition with their international counterparts.

The main goals for automotive components, parts, and accessories manufacturers are to
improve technology and quality and to develop design capability. Most of the domestic
automotive parts manufacturers' R&D capabilities are limited due to the small scale of
their operations and a shortage of capital as compared to international companies. In the
next five years, the Chinese Government will continue to encourage foreign investment
in automotive component development and manufacturing. In the meantime, there is a
growing market for imports and American products are generally highly regarded by
Chinese customers.

Many U.S. firms have already begun exporting to this quickly growing market. U.S.
automotive component firms enjoy a good reputation for quality and many U.S. firms are
already well known to Chinese end-users. Domestic OEM firms encourage U.S.
suppliers to establish plants in China or work more closely with local firms to upgrade
product quality. As more parts are sourced locally, the total cost of production decreases,
as there is no import tariff on locally made products.

The reductions in automobile tariffs will make it much more cost effective for U.S. firms
to export finished vehicles to China and reduced tariffs on parts will allow companies to
import essential components that cannot currently be found domestically. Additionally,
as China's restrictions on trading and distribution are reduced, American companies are
gaining the right to distribute most products, including automobiles and related parts, in
any part of China, whereas formerly, foreign companies could only distribute parts to one
interior destination in China and they were not allowed to ship or distribute products
between cities without employing a Chinese freight company.

The Shanghai area is the center for component manufacturing, representing around 20%
of national production. Shanghai is also home to Shanghai General Motors, Delphi,
Visteon, and other notable American automotive companies and, as such, provides a
good starting point for US automotive component exporters to begin to explore the
Chinese market.




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