China has seen a big inflow of foreign funds in the field of auto manufacturing. Big foreign auto parts production enterprises are gobbling up China's market with their advantages in technology and service.

The situation has aroused great concern among people in the sector. They are worried that the penetration of foreign auto parts producers may lead to an overall monopoly of Chinas auto parts market by foreign-capital enterprises. This will put Chinese auto parts enterprises into a difficult status in development of motor vehicles of Chinese own brands.

Starting from 2004, world auto giants have readjusted their vehicle production structure in China, while auto parts enterprises, as upstream makers and leaders of automotive industry, have started a new round of investment in China. Lately, many world famous auto parts producers such as Bosch, Delphi, Magna and Valeo have expanded their China operation by making additional investment in China, indicating the attraction of the potentials of China auto market.

FAW Volkswagen has started construction of a new engine plant near the Dalian Bonded Zone in Northeast China's Liaoning Province. This Sino-German joint venture with investment amounting to 150 million euro will produce engine parts including case, crankshaft and connecting rod, and assembly of engines, with raw materials mainly purchased in China. The joint venture plans to realize an annual production of 150,000 auto engines in the first step with localization rate of 70 per cent. It is expected to start industrial-scale production in early 2007, targeting at 300,000 auto engines a year.

Bosch, the biggest auto parts maker in the world, opened a technical center in Suzhou City in East China's Jiangsu Province in April this year, with total investment of 60 million euro, which will provide an all-round service of parts and system testing for Chinas auto parts manufacturers and conduct localized production of products of ABS8.0 and ESP8.0 series. Bosch also plans to make additional investment of US$600 million in China.

Delphi, the second biggest auto parts suppliers in the world, announced that its new plant in Suzhou has started production in April, while its newly-built R&D center has started operation in China. Up to now, Delphi has opened 15 joint ventures or wholly owned enterprises in China, including one controlled company, one training center, one technical center and 12 factories including the one in Suzhou. Its products are supplied to almost all Chinese and Sino-foreign joint venture enterprises in China.

At the same time, Magna, the fourth biggest auto part maker in the world with business volume hitting US$20.7 billion last year, said that it now could hardly satisfy the market demand in China. Its president Mark Hogan said that it will launch six more new plants in China on the basis of its existing six plants. Its seven subsidiaries, Magna Stelyr, MagnaDonnelly, Powertrain, CosmaInternational, Intier, De-coma and Tesma entered the China market in 1996. Among them, MagnaDonnelly and Intier have opened six factories in China, which achieved 180 per cent growth in 2003, and about 30 per cent growth in 2004. Besides the planned six new factories, Magna also plans to set up two R&D centers in China, focusing on electronic and tactile screen technology. It still expects more than 11 per cent growth of sales on China market in the future time.

Valeo, one of the top ten auto parts makers in the world, announced in April that it had inked an agreement with FAW, the biggest automaker in China, on founding of a joint venture, which will be the ninth joint venture company of Valeo in China. Valeo will have 60 per cent of the stake in the new company, which will engage in development and production of air conditioner compressor for both Chinese and foreign markets.

Valeo has also announced its China development plan to launch six plants in China, including a wholly owned safety system plant in Wuxi City in East China which will produce such parts as remote control, anti-theft appliance, locks, steering rod lock, door lock control and grip handle (which plans to start production in September 2005), a joint venture for development and production of engine cooling system, a joint venture of wiring system, a joint venture of parking sensor, a wholly owned factory of engine control system in Central Chinas Wuhan City with products of Europe IV standard, and a wholly owned factory of electric system of auxiliary braking system in Shanghai.

In fact, these international auto parts giants had already entered China in the middle of the 1990s. After a decade of fast development, they have helped China to become the third biggest auto consumption market and the fourth biggest production base in the world.

Industry analysts held that the strong presence of major world auto parts producers on China market is a move they have to take as they have no other choice. China had issued the Administrative Rules on Import of Automotive Parts with Completed Vehicle Features which became effective on April 1 this year.

According to the rules, vehicles with imported parts exceeding 40 per cent are regarded as complete vehicle in term of tariff collection. The present tariff rate on car parts is 14 per cent which is about 20 per cent lower than that on complete vehicles. Even after July 1, 2006 when the tariff rate on complete vehicles will drop to 25 per cent, the gap on tariff rate between complete vehicle and auto parts will still be 9 per cent.

The publishing of the rules indicates that profits of auto enterprises engaging in production in forms of CKD and SKD will decline sharply. In order to set a firm footing on Chinas auto market, foreign auto parts enterprises have not other choice but investing in new plants in China. Otherwise, foreign auto parts enterprises will lose their qualification as suppliers in China so long as they refuse to move and extend the production lines in China.