China's Market Offers Strong Potential For Auto Parts, MEMA Said - Motor & Equipment Manufacturer Association - Industry Overview

Autoparts Report, Jan 17, 2003

China is becoming a more attractive market for motor vehicle parts and products, according to the Motor & Equipment Manufacturer Association (MEMA). MEMA cites the entry of China into the World Trade Organization (WTO) as a major reason for opening the Chinese economy.

"The agreement will open the door for automotive suppliers, allowing automotive plants to buy imported parts without foreign parts companies establishing a factory in the country or sharing intellectual property rights to technology," said Frank Hampshire, MEMA director of research. Auto parts tariffs also will be reduced to 10 percent, he added.

Hampshire noted that China's automotive parts market has already expanded rapidly, according to International Trade Administration (ITA) statistics. It has grown more than 9 percent annually in recent years, reaching $23 billion in 2000, with U.S. sales of $316 million that year.

The market for replacement parts is especially good, due in part to the number of accidents caused by inexperienced drivers and the technical deficiencies of domestically produced cars. Parts makers from Japan, Germany, France, Italy and the United States have invested in the country, along with many domestic firms.

MEMA said U.S. automotive parts exports to China grew by 57.3 percent year-over-year for the first six months of 2002 to $173 million, according to the U.S. Census Bureau. "With growing vehicle and parts sales and the WTO agreement opening up the market, major shifts are taking place in the automotive parts market in China," Hampshire said.

"Protectionist limitations may not completely go away, as the agreement intends, but winning market share in what will be one of the world's largest markets is a goal of many automotive and parts companies as the market opens to the world," he added.

China is the eighth largest motor vehicle manufacturing nation and the third largest manufacturer in Asia, according to the Asian Automotive Business Review. Passenger car production in China has doubled between 1996 and 2001, and preliminary figures for this year indicate that the trend will continue at a 31 percent greater pace than last year.

Vehicle production is expected to increase to 3.2 million vehicles by 2005. By 2020, demand is expected to surge to 17.1 million passenger vehicles and 2.69 million freight vehicles, according to analysts at Morgan Stanley.