Auto Parts Manufacturing in China

Transcription

1 CONTENTS Error! No text of specif ied sty le in document. July 2017 IBISWorld Industry Report Auto Parts Manufacturing in China Auto Parts Manufacturing in China July 2017 About This Industry... 2 Industry Definition... 2 Main Activities... 2 Similar Industries... 2 Additional Resources... 3 Industry Performance... 4 Executive Summary... 4 Key External Drivers... 4 Current Performance... 5 Industry Outlook... 7 Industry Life Cycle... 9 Products & Markets Supply Chain Products & Services Demand Determinants Major Markets International Trade Business Locations Competitive Landscape Market Share Concentration Key Success Factors Cost Structure Benchmarks Basis of Competition Barriers to Entry Industry Globalization Major Companies Shanghai Automotive Industry Corporation (Group) Wanxiang Group Weichai Holding Group Co. Ltd Guangzhou Automobile Industry Group Co. Ltd Bosch (China) Investment Limited Other Players Operating Conditions Capital Intensity Technology & Systems Revenue Volatility Regulation & Policy Industry Assistance Key Statistics Industry Data Annual Change Key Ratios Jargon chinahelp@ibisworld.com

2 Auto Parts Manufacturing in China July About This Industry Industry Definition Businesses in the Auto Part Manufacturing industry in China produce parts, accessories and components for motor vehicles, including motor vehicle bodies, mechanical and electronic components, and parts for electric motors. These manufacturers supply motor vehicle assembly and replacement part companies (i.e. the aftermarket). Main Activities The primary activities of this industry are: Automobile body parts and accessories manufacturing Chassis parts and accessories manufacturing Electric components and parts manufacturing Engine parts and accessories manufacturing Other parts and accessories manufacturing The major products and services in this industry are: Mechanical parts and accessories Electric motor parts and accessories Electronic parts and accessories Similar Industries Automobile Body and Trailer Manufacturing in China This industry is engaged in the oiling, inflating, waxing, polishing, paint spraying, cleaning, changing and retailing of auto parts and accessories Auto Parts Stores in China This industry retails motor vehicle parts and accessories Car Rentals in China This industry provides short-term (30 days or fewer) and long-term (more than 30 days) rentals of automobiles. 3721a - Passenger Car Manufacturing in China This industry manufactures passenger automobiles.

3 Auto Parts Manufacturing in China July Additional Resources For additional information on this industry: China Automobile Parts Network China Auto-parts Information Network China Association of Automobile Manufacturers China Customs National Bureau of Statistics China

4 Auto Parts Manufacturing in China July Industry Performance Executive Summary The development of the Auto Parts Manufacturing industry is being driven by the growing Automobile Manufacturing industry (IBISWorld industry report 3721) and strong growth in the number of automobiles in use across China. At the end of March 2017, the total number of automobiles in use in China was over 200 million; this number is expected to continue increasing rapidly in future years. China's accession to the World Trade Organization (WTO) in 2001 helped facilitate the development of the automobile parts and accessories market by encouraging an open and rational market structure. However, membership in the WTO also meant that China had to reduce its tariffs and nontariff barriers, and open up its service sector. China's Auto Parts Manufacturing industry is less efficient compared with those in developed countries, and faces increasing competition as the market continues to become more globalized. In 2017, industry revenue is expected to total $675.2 billion, up 6.4% from Over the five years to 2017, revenue has been increasing at an annualized rate of 12%. Domestic demand is forecast to total $673.7 billion, up 6.6% from Meanwhile, exports are estimated at $29.9 billion and imports $28.4 billion in 2017, respectively. The production of advanced automotive parts is still limited in China and products such as acoustic systems, automobile special-purpose ICs (integrated chips), high-end sensors, and microprocessors are imported from developed countries. In the next five years, industry revenue is forecast to increase at an average annualized rate of 6.5%, totaling $926.9 billion in As the technology and the quality of Chinese products improve and pricing levels remain very competitive, demand from foreign countries will increase steadily. As a result, exports are projected to grow 7.2% per year to increase to $42.3 billion in However, many manufacturers will suffer under the pressure of the decreasing prices of automobile parts and accessories. Key External Drivers The key sensitivities affecting the performance of the Auto Parts Manufacturing industry include: Downstream Demand - Motor Vehicle mfg Automobile parts and accessories manufacturers have a close relationship with complete automobile manufacturers and are increasingly required to provide complete sub-systems for assembly. Exchange Rates - Yuan per $US The appreciation of the yuan against the US dollar makes Chinese exports less competitive in foreign markets, and importscheaper in the domestic market. However, depreciation expectation of the yuanis expected to stimulate exports of China's auto parts. Import Taxes (Duties) - Car Retailing Further reductions in tariffs will lead to greater import penetration. Imports are significant in the aftermarket segment, where substitutes of original equipment prevail. Industry Systems and Technology - Motor Vehicle and Part mfg Technology and systems influence production costs and the types and specifications of products manufactured. Upstream Supply - Metal Ore Mining Rising raw material prices increase production costs and can squeeze profit if these costs are not passed on to customers.

5 Auto Parts Manufacturing in China July Current Performance Revenue for the Auto Parts Manufacturing industry in China has been growing at an annualized rate of 12% in the five years to In 2017, mainly due to slow growth in the auto sector, industry revenue is expected to increase 6.4% to total $675.2 billion. Steady growth in the downstream Automobile Manufacturing industry (IBISWorld report 3721) drove a significant proportion of revenue growth in the Auto Parts Manufacturing industry in the five years through The number of automobiles manufactured in China increased at an annualized rate of 9.9% between 2012 and 2016 to 28 million units. Strong domestic demand for cars, especially for new energy vehicles, as well as increased foreign demand for the industry's products, will continue to drive industry growth. Industry performance In 2016, the sales volume of Chinese automobiles increased 13.7% to 28 million units. Total industry revenue was estimated to grow by 14.2% to $634.4 billion. In 2015, the sales volume of Chinese automobiles increased 4.7% to 24.6 million units, down from 6.9% in Moreover, China's exports of auto parts declined by 2% in Total industry revenue grew just 8.5% for the year. In 2014, the sales volume of Chinese automobiles increased 6.9% from 2013 to 23.5 million units, down from 13.9% in Industry revenue increased only 10.5%. In 2013, the sales volume of Chinese automobiles increased 13.9% from 2012 to 22.0 million units and industr revenue grew 20.9%. In 2012, China's automotive market performed weakly with sales growth of just 4.3%. The sales volume of commercial vehicles decreased 5.5% during the year with the slowdown of China's macroeconomy. As a result, industry revenue grew just 15% over the year. In 2011, affected by the cancelation of some major preferential policies and a limit on automotive purchases in large cities such as Beijing, China's automotive market exhibited weak performance with sales growth of only 2.5%, down from 32.4% in Consequently, the Auto Parts Manufacturing industry grew only 15.3% that year, down from 31% in Industry profitability Average industry profit is expected to be at 7% of revenue in Profit levels declined in the past few years due to increasing wages and fierce competition in the auto parts market. With competition among operators expected to intensify, participants will have to lower prices to retain market share. Therefore, industry profitability is expected to decline in the future. Exports and imports China has become one of the largest manufacturers of automobile parts and accessories in the world. Export growth was significant in the past decade, particularly from 2004 to 2007, driven by strong demand in the United States and Japan. Exports have been increasing at an annualized rate of 4.7% between 2012 and However, growth has fluctuated significantly over the period, with 13% growth in export value in 2014 and 2.8% decrease in export value in 2016 due to weak global market demand. Exports as a proportion of industry revenue declined to an estimated 4.4% in 2017, down from 6.2% in Competing imports have increased at an annualized rate of 4.3% during the past five years to Demand for high quality automobile parts in China is still reliant on imports, as domestic manufacturers cannot produce high quality and specialized automobile parts. Over the five-year period, more foreign automobile parts manufacturers moved their production facilities to China, bringing with them advanced technologies and the capability to manufacture specialized auto parts. As a result, import growth has been slower than in the previous five-year period. In 2017, imports increased to $28.4 million, up 10% over 2016.

6 Auto Parts Manufacturing in China July Establishments and wages In the five years to 2017, there were many new market entrants from domestic and foreign operators. Foreign players entered the market by forming joint venture companies with local producers, or through mergers and acquisitions. Mergers between domestic manufacturers have also been occurring. Domestic companies have combined efforts to strengthen market positions, increase market shares and widen sales networks. Total industry wages have increased significantly during the past five years, at an annualized rate of 13.2%. The average annual wage per employee increased from $8,037 in 2012 to an estimated $11,985 in 2017, a reflection of surging labor costs in China. Technology and economies of scale Although developing strongly, the industry still uses relatively backward technologies. Economies of scale have not yet been completely developed. There are numerous small players in the industry, and few operators are large scale with significant market shares. In some regions of South and East China, a number of family businesses are involved in automobile parts manufacturing. Each family specializes in the production of goods within a single segment or subsegment. In recent years, several families have combined to form economies of scale and scope, by sourcing products from each other at lower prices and by offering a large variety of products to customers. However, the production capacity and technology level of each independent operator are limited. Furthermore, the production of advanced automotive parts is also limited in China. Products such as acoustic systems, automobile special-purpose ICs (integrated chips), high-end sensors, and microprocessors are still imported from developed countries. Moreover, costly compound materials, such as aluminum, magnesium, titanium and some advanced plastic materials are generally not used in Chinese-made products. Research and development The research and development (R&D) ability of domestic manufacturers is weak due to limited capital for investment. For this reason, domestic companies often fail to meet demand and quality requirements from the fast growing Automobile Manufacturing industry. In addition, they face pressure from foreign automobile parts manufacturers operating in China that possess patents and intellectual property rights. Annual investment in R&D in China averaged between 1% and 1.5% of sales revenue over the past five years. In developed countries, the rate is typically 3% to 5%, with some operators reaching 10%. The share of R&D investment in parts and accessories in total income should be 1.2 to 1.5 times that of the share of R&D in the Automobile Manufacturing industry to offer the required products to downstream customers. By contrast, in China, it is less than a third. This severely limits the R&D level and capacity of the industry. However, domestic operators are beginning to increase investment in R&D to become professional manufacturers of high-quality products.

7 Auto Parts Manufacturing in China July Industry Outlook ACMR-IBISWorld forecasts that in the five years to 2022, total revenue of the Auto Parts Manufacturing industry in China will increase at an annualized rate of 6.5% to $926.9 billion. The main drivers of industry growth will be steady increases in overall demand for automobile parts and accessories, as well as gradual demand growth from China's Automobile Manufacturing industry (IBISWorld industry report 3721). International trade The industry's exports are forecast to increase at an annualized rate of 7.2% over the next five years. As China has become one of the largest manufacturers of automobile parts and accessories in the world, export volumes will continue to increase steadily, especially as the technology and the quality of Chinese products improves. As a proportion of industry revenue, exports are expected to increase from 4.4% in 2017 to 4.6% in Competing imports are expected to increase at an annualized rate of 5.8%. As more foreign manufacturers with the ability to produce specialized and high-quality industry products establish factories in China, the share of imports in domestic demand is expected to decrease from 4.2% in 2017 to 4.1% in The number of operators is forecast to increase 0.5% per year in the next five years, reaching 4,753 in Total industry wages, however, will grow at a much faster annualized rate of 6.4% due to higher wages per employee. Growing downstream demand China's automobile sector is forecast to maintain steady growth and total automobile output volume will be 30 million units and 35 million units in 2020 and 2025, respectively. The Automobile Manufacturing industry in China is projected to grow almost 1.5 times faster than China's GDP over the period. Further separation of the Automobile Manufacturing industry and the Auto Parts Manufacturing industry is expected. Currently, some automobile parts and accessories manufacturers belong to complete automobile manufacturing enterprises in China, which limits the development of the industry to some extent. However, new energy vehicle manufacturing is expected to stimulate growing market demand for auto parts. Industry globalization Further industry globalization will be a major trend in the industry as manufacturers expand export markets, while continuing to satisfy domestic demand. China will continue to be one of the largest manufacturers of automobile parts and accessories in the world. High penetration levels of foreign capital in the Automobile Manufacturing industry in China will further threaten local automobile parts and accessories manufacturers. Foreign operators obtained large market shares in the passenger vehicle part market in China in recent years. Currently, foreign capital accounts for over 36.0% of China's automobile parts and accessories market. Foreign operators are also the sole market for certain automobile parts, such as high-end electronic controls, fuel injection systems, transducers, brake systems, and steering systems. As a result, domestic operators face increasing challenges from their foreign competitors, and will likely look to improve performance through mergers and acquisitions. Increasing competition Economies of scale and increased competition will be important industry drivers. Currently, there are many small companies that operate at low efficiency levels. Problems caused by small scale, low concentration and disorderly competition inhibit the development of the industry, and domestic manufacturers will have to integrate to complement each other and allocate resources more efficiently.

8 Auto Parts Manufacturing in China July It is also important that operators in the industry strengthen research and development (R&D) abilities. China has incorporated some advanced foreign technology, equipment and management systems; however, domestic manufacturers still need to strengthen their R&D ability to manufacture independent products to meet the requirement of complete automobile manufacturing operators. Profit declines will be a serious challenge as competition between assembly plants and parts manufacturers intensifies. Moreover, many automobile parts and accessories manufacturers will suffer the pressure of the decreasing prices of automobile parts and accessories from assembly plants. Competition pressure will have a smaller impact on foreign automobile parts manufacturers in China as they possess patents and unique technology, thus are better able to resist price cuts.

9 Auto Parts Manufacturing in China July Industry Life Cycle This industry is in the growth stage of its life cycle. Life Cycle Stage Industry value added increased strongly in recent years There are frequent technology changes and innovations in this industry New products can be rapidly developed for downstream industries The Auto Part Manufacturing industry in China is in the growth phase of its life cycle. Industry value added is expected to increase at an annualized rate of 8.9% between 2012 and 2022, much faster than China's average GDP (6.5% per year) over the same period. The industry's enterprise and establishment numbers are also expected to increase during 2012 and 2022, indicating new market entrants and greater investment in sales network development. Technological changes and innovations are relatively frequent in the industry. Several foreign manufacturers that have recently entered the market have established joint ventures with local companies and brought advanced technologies and management expertise. This has contributed to the development of domestic manufacturers and the expansion of their operations. The domestic market still has unmet demand for high quality automobile parts and accessories. In addition, the average usage rate of automobiles remains relatively low, particularly in the central and western areas in China. Steady usage increases will stimulate further demand for automotive parts and accessories.

10 Auto Parts Manufacturing in China July Products & Markets Supply Chain Key Buying Industries Automobile Manufacturing in China This industry manufactures complete automobiles and automobile engines using auto parts and accessories Automobile Body and Trailer Manufacturing in China This industry manufactures non-drive vehicles towed by motor vehicles using auto parts and accessories Car Repair Services in China This industry conducts automobile repairs that require automobile parts and accessories Auto & Parts Wholesaling in China This industry wholesales automobiles and auto parts and accessories Auto Parts Stores in China This industry retails auto parts and accessories. 3721a - Passenger Car Manufacturing in China This industry manufactures passenger cars using auto parts and accessories. Key Selling Industries Plastic Parts Manufacturing in China Plastic parts are used in the production of automobile parts and accessories Iron & Steel Casting in China Cast products are used in the production of automobile parts and accessories Electronic Component Manufacturing in China This industry supplies electrical equipment and components as inputs for electric motor parts and accessories Scientific Instrument Manufacturing in China This industry supplies tachometers, production counters, distance recorders and other instruments and meters used in automobile parts.

11 Auto Parts Manufacturing in China July Products & Services Electric motor parts and accessories 26.5% Electronic parts and accessories 24.5% Mechanical parts and accessories 49.0% Mechanical parts and accessories Mechanical parts and accessories make up the main product segment of the industry, contributing 48.5% of total industry revenue in The majority of automobile components are mechanical parts, including bearings, filters, covers, brakes and clutches. The price of mechanical parts has decreased in the past few years due to the declining price of raw materials like iron and steel. Electric motor parts and accessories The second-largest industry segment is parts and accessories for electric motors, accounting for an estimated 26.5% of total industry revenue in This segment includes starting motors, alternators, control units for electronic systems, and mechanical and electronic drivers. Demand for products within this segment is relatively steady, and is expected to experience only small proportional increases in the future. Electronic parts and accessories Electronic parts and accessories is the third major industry segment, generating 25% of total industry revenue in This segment includes engine electronic control systems, anti-lock braking systems (ABS), meters, global positioning systems (GPS), transducers, entertainment systems, and items used in the control, safety, communication and entertainment fields. This segment will increase in size in line with the development of China's automobile manufacturing sector and growing demand for high-end automobiles.

12 Auto Parts Manufacturing in China July Demand Determinants Economic growth levels China's economy has been growing rapidly in recent years, and has contributed to strong growth in market demand and industry revenue. The development and expansion of automobile industries The Automobile Manufacturing industry in China (IBISWorld industry report 3721) is developing strongly, creating high growth potential for automotive parts and accessories manufacturers. At the end of March 2017, the total number of automobiles in use in China was about 200 million. Diversity of downstream industries Different vehicles require different types of automobile parts and accessories. This can stimulate demand for a wide variety of products manufactured by this industry. Quality and technology levels The development of new technology and the production of high quality products promote demand for the industry's products. Government regulations National and provincial regulations have encouraged the development of the industry. These have focused on providing a better operating and market-focused environment for the industry. Major Markets Direct sales 39.9% Distributors (wholesalers) 34.1% Retailers 20.9% Exports 5.1% Direct sales Most of the industry's products are sold directly to end-users through supplier service centers and parts and accessories shops. At present, suppliers strictly control sales of some essential automobile parts, such as engine and automobile body parts. Customers can purchase these parts only directly from their suppliers. This is one of the measures suppliers take to guarantee product quality and avoid the impact of counterfeit automotive products on their image. Distributors

13 Auto Parts Manufacturing in China July The second-largest segment is distributors and dealers. Some foreign suppliers have established first- and second-tier distributors responsible for automobile part and accessories sales and distribution. As automobile production is concentrated in Shanghai, Changchun, Hubei, Beijing, Tianjin, Guangzhou, Chongqing and Harbin, these have become cities with well-developed distributor networks for automobile parts and accessories sales. Retailers Retailers are the third-largest market segment in the industry (IBISWorld industry report 6562). Some cities have established retail markets for automobile parts and accessories, such as Beijing West Suburb Automobile Parts and Accessories Market, Shanghai Oriental Automobile Parts and Accessories Market, and Wuhan Wanguo Automobile Parts and Accessories Market. Customers often prefer to buy products from these markets for the large product range and relatively lower price of parts and accessories. Exports Exports are expected to account for 5.1% of industry revenue in Exports play an important role in this industry as China is one of the largest producers of automobile parts and accessories in the world. International Trade Exports in this industry are medium and steady. Imports in this industry are medium and steady. Exports Exports are expected to increase by 6% in 2017 to $29.9 billion or 4.4% of industry revenue in In 2010, mainly due to the recovery in the global economy, the industry exports increased 35.7% from Since 2011, with slowing development of global economy, exports had been in lower growth situation from 2011 to 2014 compared with that of In 2015, as automobile market in countries like Japan and Russia was depressed, international market demand decreased. Industry exports declined to $29 billion, down 2% from ver the next five years, the industry's exports are forecast to increase at a rate of 7.2% per year. The improving manufacturing ability, capacity and technology of China's local manufacturers will drive foreign demand for automobile parts and accessories produced in China. According to China Customs, the major export markets for the Auto Part Manufacturing industry in 2016 included the United States (33.3% of total exports by value), Japan (9.9%), Mexico (4.4%), Germany (4.4%) and South Korea (4.1%). Higher labor costs in these countries resulted in growing demand for Chinese-made auto parts. Imports Competing imports have increased at an annualized rate of 4.3% during the past five years to In 2015, with weak domestic demand for high-end auto parts, imports decreased to $23.9 million, down 12.5% from In 2016, the strong domestic demand stimulated imports, which increased by 8% to $25.8 billion. In 2016, the major source of competing imports into China was Germany, accounting for 30.7% of total import value. Other major import markets included Japan (24%) and South Korea (17%). The imported value of these three countries accounted for 71.7% of total competing imports into China in 2016.

14 Auto Parts Manufacturing in China July China will continue to import automobile parts and accessories as many local manufacturers only operate low-technology product lines. However, the ratio of imports to domestic demand will decrease, as local manufacturers develop their facilities and invest in more productive equipment.

15 Auto Parts Manufacturing in China July Business Locations Region Percentage East China 45.1 Middle South China 26.1 South West China 9.4 North China 9.2 North East China 8.6 North West China 1.6 Region Percentage East China 49.7 Middle South China 23.4 South West China 9.3 North China 8.1 North East China 8.6 North West China 0.7 Region Percentage East China 46.6 Middle South China 24.0 South West China 6.9 North China North East China North West China 1.3

16 Auto Parts Manufacturing in China July The industry's operations are mainly concentrated in the economically well-developed East China and Middle South China regions. Due to higher per capita incomes, larger populations and higher usage of automobiles, many industries in these regions are growing strongly, leading to greater demand for automobile parts and accessories. Zhejiang, Jiangsu, Shanghai, Shandong, Guangdong and Hubei are estimated to account for about 47.9% of total industry revenue in Jiangsu, Zhejiang, Shanghai and Shandong The industry tends to be highly concentrated in eastern coastal areas because larger firms in these areas are able to benefit from economies of scale and close proximity to imported raw materials and downstream industries. Zhejiang, Jiangsu, Shanghai and Shandong are the most dynamic areas in this region. In 2017, these four provinces are expected to account for 39.5% of total industry revenue, with 40.2% of total establishment numbers and 36.9% of total industry employment. Guangdong Guangdong is the manufacturing center of China and households in this region have relatively high disposable income levels. About 5.5% of industry establishments are located in Guangdong due to the large market potential. Revenue generated from this province is estimated to account for 8.4% of total industry revenue in The two first-tier cities, Guangzhou and Shenzhen, are the most dynamic areas in Guangdong province. Hubei Revenue generated from Hubei province accounts for an estimated 6.8% of the total in 2017, with 8.3% of the total establishment number. Wuhan is the most dynamic city in this area, and one of the leading companies in the industry, Dongfeng Motor Suspension Spring is located there.

17 Auto Parts Manufacturing in China July Competitive Landscape Market Share Concentration The level of industry concentration is low. The Auto Part Manufacturing industry in China has a low concentration level, which is expected to remain steady in future years. Revenue of the top four firms is expected to account for 10.2% of total industry revenue during There are a large number of small and medium enterprises operating in the industry, and the market is highly fragmented. There are many manufacturers that operate on a small scale and are privately owned. The majority of these lack substantial capital, technologies and employees, and only produce single products and spare parts. The low concentration level also reflects the diverse nature of the industry's products. Firms tend to focus on particular parts or markets, and the majority of enterprises manufacture single products. Only some larger firms are able to manufacture a wide variety of automobile parts and accessories. According to Medium and Long Term Development Plan of Automobile Industry released in April 2017, by 2020, there will be a few auto parts group with annual revenue exceeding 100 billion Chinese Yuan and by 2025, there will be a few top ten auto parts group in the world. As a result, ACMR-IBISWorld forecasts that the industry concentration level will increase in the future with some consolidation and merger activity. Key Success Factors The key success factors in the Auto Parts Manufacturing industry are: Successful industrial relations policy Secure relationships with downstream firms is a competitive advantage for industry enterprises. Having an extensive distribution/collection network Having effective sales channels can help manufacturers increase market share and revenue growth. Undertaking technical research and development Product innovation and expenditure on research and development can be a competitive advantage for industry firms. Effective quality control Successful companies in this industry adopt quality assurance techniques and policies to improve their products and processes. Access to the latest available and most efficient technology and techniques The degree of investment in technological improvements and product development can improve the products and revenue of firms in this industry. Establishment of export markets The development of export markets is important for some firms in this industry. Understanding government policies and their implications Understanding the implications of changing government policies is important for new and existing firms.

18 Auto Parts Manufacturing in China July Cost Structure Benchmarks Purchases 60.2% Wages 5.8% Management and Administration 5.0% Depreciation 4.0% Rent 3.5% Tax and Interest 3.1% Utilities 2.3% Other 9.1% Profit 7.0% Profit Average industry profit is estimated at 7% in Profit levels have been declining over the past few years due to increasing raw material and labor costs. However, industry profitability has increased since 2009 due to surging downstream demand from automobile manufacturers. Purchases The major cost in the industry is raw materials, including iron, steel and machine parts. These are expected to account for about 60.2% of industry revenue in Due to increasing global and domestic demand for raw materials over the past several years, prices have risen substantially, particularly steel prices. Depreciation Industry depreciation is expected to account for 4% of industry revenue in This includes depreciation of buildings, machinery, equipment, office facilities, and vehicles. Depreciation expenses have been stable, which indicates a steady level of capital investment. Wages Another major industry cost is labor, which accounts for 5.8% of industry revenue in Management and administration costs account for an additional 5.0%. Although the cost of labor is lower in China than in other countries, the technology of domestic manufacturers is not advanced. Therefore, firms need large numbers of employees for production. Other costs Other costs depend on the operations of each firm, and may include logistics and transportation, storage, maintenance, subcontractors, insurance, advertising, and other expenses.

19 Auto Parts Manufacturing in China July Basis of Competition Competition is high and increasing Price A main basis of competition is product price. To keep pricing competitive, automobile parts and accessories manufacturers have been forced to partly absorb increased production costs due to rising steel prices in recent years Product quality Firms that have the ability to manufacture products according to specifications can have an advantage in the market. Customers generally find a balance between quality and price when choosing equipment suppliers. The quality of products is very important for exporting firms and their customers. Service The ability to provide after-sales service and repairs can be important for customers and can influence the brands they choose. Sales distribution channels Customers may prefer to purchase products that are supplied via a wide and extensive retail distribution network. This can have a significant impact on costs and competitiveness of manufacturers. Customer relationships The relationships that automobile parts and accessories firms have with customers are also important to ensure that problems are dealt with promptly and effectively. Some large manufacturers have successfully retained the same customers for several decades by maintaining strong client relationships. Technical expertise In recent years, advances in technology, the use of state-of-the-art facilities, and the retention of skilled and dedicated employees have helped firms in this industry to maintain their competitive advantages.

20 Auto Parts Manufacturing in China July Barriers to Entry Barriers to entry are medium and steady. Barriers to Entry checklist Industry Competition Industry Concentration Life Cycle Stage Capital Intensity Technology Change Regulation and Policy Industry Assistance Level/Impact High Low Growing Medium Medium Medium High SOURCE: IBISWORLD Investment scale The need to invest in large and efficient manufacturing facilities can discourage competitors from entering the industry. The high costs associated with the construction of facilities are a significant deterrent to entry. In addition, the cost of developing large-scale production is very high. Technical expertise and knowledge New firms must have similar or enhanced levels of technical expertise, skilled workers and technology to compete with existing forms. In particular, the establishment of sales networks and distribution channels poses challenges for newcomers. Government and environmental regulations Due to the hazards, materials, and waste that firms in this industry produce, national and local governments require environmental approvals to operate in the industry. These legal requirements are important barriers facing a new manufacturer to the industry. Establishing a good reputation As some domestic and foreign manufacturers have good reputations and well-known brands, customers may prefer to deal with these suppliers, which creates a further barrier to entry.

21 Auto Parts Manufacturing in China July Industry Globalization The level of globalization is medium and increasing. The Auto Part Manufacturing industry in China is subject to a medium globalization level, which is expected to increase in the future. Many export-oriented domestic companies have emerged in the past decade, which has accelerated industry globalization. China has become one of the top countries for automobile parts and accessories manufacturing in the world. In addition, several foreign automobile parts and accessories manufacturers have entered the China market in recent years by establishing factories and joint ventures with domestic firms. This resulted from strong domestic demand for high-quality automobile parts and accessories products in China. In addition, foreign firms see strong opportunities for company expansion and development in China. Foreign enterprises are estimated to account for about 43.3% of industry revenue in With greater levels of foreign investment in this industry in China in the future, the globalization trend is expected to increase.

22 Auto Parts Manufacturing in China July Major Companies Major Player Shanghai Automotive Industry Corporation (Group) Market Share 0.0% - 3.6% (2017) Wanxiang Group 0.0% - 3.0% (2017) Weichai Holding Group Co. Ltd. 0.0% - 2.3% (2017) Guangzhou Automobile Industry Group Co. Ltd. 0.0% - 1.3% (2017) Bosch (China) Investment Limited 0.0% - 1.1% (2017) Other 88.7% % (2017) Shanghai Automotive Industry Corporation (Group) Market Share: 3.6% Originally Shanghai Manufacturing Company of Components of Internal-Combustion Engine, the company was founded in December After being restructured into a commercial enterprise in 1978 and renamed Shanghai Automobile and Tractor Affiliated Company, the company formed a partnership with Volkswagen in In March 1990, the company was renamed Shanghai Automotive Industry Corporation, with Group added in In 2006, Shanghai Automotive Industry Corporation Group (SAIC) replaced FAW to become the largest automobile manufacturer in China in terms of sales volume. In addition to passenger automobiles, the group's product lines include high-end buses, trucks, tractors, motorcycles and automotive components. SAIC operates nine complete automobile manufacturing companies, over 20 parts and component manufacturing companies, five service and trade companies and five research and development institutions. The key subsidiary of SAIC, Shanghai Automotive Co. Ltd., was a listed enterprise that went public on the Shanghai Stock Exchange in It is now the largest public automobile company in China. In recent years, SAIC has been paying more attention to the development of its auto parts manufacturing business. SAIC has been promoting research and development, optimizing its product structure according to market demand, and improving industry layout. Revenue from SAIC's auto parts business increased from $12.9 billion in 2012 to $22.3 billion in HUAYU Automotive Systems Company Limited As one of the subsidiaries of SAIC, HUAYU Automotive Systems Company Limited is mainly engaged in the Auto Parts Manufacturing industry in China. HUAYU Automotive has six core business divisions, including metal forming and dies, interior and exterior trimming, electric and electronics parts, function parts, hot-worked parts and new energy parts. The company was listed on the Shanghai Stock Exchange in Its main products are auto parts for transmission systems, steering systems, braking systems and exhaust systems.

23 Auto Parts Manufacturing in China July The company has set up steady relationships with many automobile manufacturers, including Shanghai Volkswagen, Shanghai GM, FAW-Volkswagen, Chang'an Ford, Dongfeng Peugeot Citroen, Beijing Hyundai, Dongfeng Nissan and Great Wall. By the end of 2014, HUAYU Automotive had established 275 research and development, manufacturing and service bases. At the same time, the company built 14 branches in the US, Thailand, Russia, Australia, Czech Republic and India. In recent years, HUAYU Automotive has been improving product quality, developing markets and highlighting technology, which has contributed to growth in revenue. In 2016, its sales revenue increased to $19.2 billion, up 32.6% from Wanxiang Group Market Share: 3.0% Wanxiang Group was founded in July 1969 and is headquartered in Xiaoshan city, Zhejiang province. Currently, it employs over 40,000 workers. The group's main products include universal joints, bearings, and constant-velocity (CV) joints. Wanxiang Group has a manufacturing base covering four square kilometers, and has strategic partnerships with local factories in Changchun, Hubei, Hainan, He'nan, Jiangsu, Heilongjiang, and Anhui. The group has 31 companies (including 18 holding companies or other ventures) in eight countries, including the United States, the United Kingdom, Germany and Canada. Wanxiang Group manufactures a large range of products, from spare parts to components and systematic template supplies. It sells to domestic and foreign markets, including to customers in over 40 countries, such as the United States, Canada, Latin and South America and all of Europe. The group's products are also sold to some major automobile manufacturers like GM and Ford. Wanxiang America Corporation provides full-line customer service to clients in the United States, Canada, and South America. In addition to the automotive market, Wanxiang is also involved in large-scale agriculture, aquaculture, real estate development, infrastructure development, and other programs. In 2012, "Energy Saving and New Energy Vehicles Industry Development Planning ( )" was issued, and Wanxiang Group will continue to adjust its product structure to manufacture more new energy vehicles parts. In August 2012, with $450 million of capital injection, Wanxiang Group obtained 80.0% stock equity of A123, a maker of batteries for electric vehicles that received U.S.-government backing. Exports of the group totaled $2.6 billion, and company revenue surged to $18.48 billion. In March 2011, the first phase of an expansion project was put into operation, which increased the annual production capacity of wheel bearings by 2.5 million sets. In January 2008, the Wanxiang Group acquired Automotive Components Holdings (ACH) via its US subsidiary Neapco. ACH is the subsidiary of Ford engaged in auto parts manufacturing in the United States. In July 2007, the Wanxiang Group acquired 30.0% of AI, the top supplier of auto parts for GE, Ford and Chrysler. The group enlarged the foreign market share of auto parts by this acquisition. In 2005, the group merged with Hubei Tongda Automobile Parts and SP Company (a US company). Wanxiang Qianchao Co. Ltd. As one of the subsidiaries of Wanxiang Group, Wanxiang Qianchao Co. Ltd. is mainly engaged in the Auto Parts Manufacturing in China. Wanxiang Qianchao Co. Ltd. was established in 1969 in Hangzhou, Zhejiang

24 Auto Parts Manufacturing in China July province. Specialized in manufacturing, developing and selling automotive chassis and suspension system, braking system, transmission system, hubs of wheel, bearings and other auto precise parts, Wanxiang Qianchao Co. Ltd. is one of the largest independent and specialized auto parts manufacturing bases in China. From 2010 to 2016, Wanxiang Qianchao Co. Ltd. had been speeding up transformation and upgrading of products, increasing production efficiency, implementing its international development strategy, and strengthening research and development. In 2016, the sales revenue increased to $1.7 billion, up 2.6% from In 2014, Wanxiang Qianchao Co., Ltd. accelerated further international process, advanced product grade and improved market structure, which benefited company development. Its sales revenue increased to $1.6 billion for the year. In 2013, Wanxiang Qianchao Co. Ltd. purchased 90% of shares of Wanxiang Tongda Co. Ltd. engaged in Auto Parts Manufacturing industry, which stimulated revenue growth of Wanxiang Qianchao Co. Ltd. In 2009, under the negative impact from financial crisis, automobile transportation was depressed, which resulted in weak market demand growth for auto parts. Therefore, profit of Wanxiang Qianchao Co. Ltd. decreased to $51.2 million, down 3.8% from Weichai Holding Group Co. Ltd. Market Share: 2.3% Founded in 1946, Weichai Holding Group Co. Ltd. (Weichai Group) is mainly engaged in manufacturing automobile vehicles and equipment. It has four business platforms: vehicle machine, power train, luxury yachts and auto parts, and has wholly owned or holding subsidiaries in Shandong, Shannxi, Hunan, Chongqing, Jiangsu, Fujian, Shanghai and Beijing in China, and branches or subsidiaries in Europe, North America and Southeast Asia. Weichai Group has established a service network consisting of 5,000 special maintenance service centers in China and over 400 servicing stations in overseas markets. With main products including Weichai engine, Fast Gear and Hande Axle, Weichai Group mainly exports its products to more than 100 countries, covering Russia, Iran, Saudi Arabia, Vietnam, Indonesia and Brazil. Weichai Power Co. Ltd. As one of the subsidiaries of Weichai Group, Weichai Power Co., Ltd. is mainly engaged in the Auto Parts Manufacturing industry in China. Founded in 2002, Weichai Power merged Xiang Torch Automotive Co. Ltd. in 2007, After the merger, Weichai Power formed three business platforms, including vehicles, power train and auto parts. Weichai Power has a Weifang-centered all series power manufacturing base, a Xi'an-centered heavy-duty vehicle and power train manufacturing base, a Chongqing-centered big power engine and light duty vehicle manufacturing base, a Zhuzhou-centered automobile electronics and part manufacturing base and a Yangzhou-centered light and micro automobile engine manufacturing base. In recent years, Weichai Power has been carrying out innovation strategy, increasing research and development input, highlighting technical contents of products, enhancing core competitiveness ability, improving product structure according to market development and change, which contributed to the growth of its overall sales revenue from 2011 to However, in 2012, with decreasing market demand for heavy-duty trucks, the sales volume of heavy-duty trucks and heavy-duty truck engines of Weichai

25 Auto Parts Manufacturing in China July Power declined 27.8% and 34.8%, respectively, from In 2014, Weichai Power further improved product structure and enhanced technology innovation. Revenue increased to $12.9 billion for the year. In 2015, with weak growth of domestic automobile market, the company revenue declined by 9.2% for the year. In 2016, the company's revenue increased by 22.9% to $14.4 billion. Shaanxi Fast Gear Co. Ltd. As one of the subsidiaries of Weichai Group, Shaanxi Fast Gear Co., Ltd. (SFG) is mainly engaged in the Auto Parts Manufacturing industry in China. SFG was established in Xian city, Shannxi province in September SFG's main products are single and twin countershaft heavy-duty transmissions; power takeoffs and transfer cases; gears and various gear forgings; and automotive spare parts. It has an annual output of 1.0 million units of heavy-duty transmissions; 50.0 million gears of different types; and 100,000 tons of automotive forgings. Gear products are exported to the United States, Germany, Japan, Australia, Belarus, South America, and Southeast Asia among other countries and regions. In 2011, SFG sold 701,200 units of transmissions and generated revenue of $176.5 million. In 2012, SFG's sales volume decreased 35.5% to 452,000 units, largely due to the slowdown in domestic heavy truck sales growth. On September 15, 2013, with $81.3 million of investment, SFG established Fast Auto Drive (Thailand) Company in Thailand. SFG further expanded its international markets, which should stimulate company development in following years. Guangzhou Automobile Industry Group Co. Ltd. Market Share: 1.3% Established in June of 2000, Guangzhou Automobile Industry Group Co. Ltd. (GAIG) is mainly engaged in the design, manufacturing and sales of automobiles and auto parts, automobile logistics, finance, insurance and leasing and renting. As one of the subsidiaries of GAIG, Guangzhou Automobile Group Co., Ltd. (GAC Group) was founded in June In August 2010, GAC Group was listed on the Hong Kong Exchange. Currently, GAC's main businesses cover the design, manufacturing and sales of automobiles, automobile engine and other parts, automobile leasing and renting, after-sales service, logistics, finance, insurance and insurance agent and imports and exports of automobile related products. Main auto part products of GAC cover engine, transmission, seats, HVAC system, automobile lamp and shock absorbers. As one of the subsidiaries of GAC, Guangzhou Automobile Group Component Co. Ltd. (GACC) is mainly engaged in the Auto Parts Manufacturing industry in China. Currently, its products include automobile seats, vehicle lamp, carpet, sound insulator, AC system, spring, cushion, smelting aluminum and aluminum wheel. GACC supplies products to automobile manufacturers such as Guangzhou Honda, Dongfeng Honda, Dongfeng Nissan, Dongfeng Citroen, Hainan Mazda and Guangzhou Toyota. In addition, GACC exports some products to the United States, Germany and Southeast Asia. Bosch (China) Investment Limited Market Share: 1.1% Set up in Stuttgart in 1886, Bosch Group is a leading global supplier of technology and services. Bosch Group has four business sectors: mobility solutions, industrial technology, consumer goods and energy and building technology.