"Within a few days, I will be leaving the current joint venture company and returning to my original state-owned enterprise. It's going to be hard to say goodbye to the place where I've worked for ten years," said Mr. Wang, the deputy general manager of a southern joint venture. His contract with the joint venture is set to end this year, and he'll be let go because the foreign company has full control over the joint venture. Speaking to reporters, he admitted he was overwhelmed after six months of uncertainty.
What worries Mr. Wang most is the future of the company. "A joint venture should have been a positive move, but in reality, we have no real voice. We're just being led around by the nose. We never get to develop new products or master core technologies. How can a company survive like that? Now, technology, branding, and the market are all dominated by foreign companies, while our factory resources are exhausted, and we’ve lost any meaningful production or management functions."
In 2004, China’s auto parts industry reached a sales volume of 440 billion yuan—nearly equal to the entire vehicle industry. But behind this success lies a growing concern: foreign investment in the domestic auto parts sector is increasing rapidly. Industry insiders worry that more multinational companies are choosing sole ownership after entering China, and even original joint venture investors are moving toward full control. In many cases, even when a joint venture exists, the core technology remains firmly in foreign hands. This trend could eventually lead to full foreign control of the auto parts industry.
The trend of foreign dominance is becoming increasingly clear. The value chain of China’s automotive industry is shifting toward components. According to a forecast from the State Council Development Research Center, China’s car ownership is expected to reach 35.63 million in 2005, 56.69 million in 2010, and over 100 million by 2020. Despite this growth potential, China’s auto parts industry still has a long way to go compared to international standards.
Currently, over 70% of the world’s top 100 auto parts suppliers operate in China. There are nearly 1,200 foreign-owned or joint-venture auto parts companies in the country, with foreign investment accounting for more than 60% of the market. In high-tech areas such as automotive electronics and engine parts, foreign-controlled enterprises make up as much as 90%.
Take Shanghai United Automotive Electronics, a joint venture between Germany’s Bosch and China United Automotive Electronics Co., Ltd. When it was established in 1996, it was seen as a milestone in the auto parts industry. However, recent reports reveal that the company is now fully controlled by Bosch.
Bosch’s strategy has been clever: first, they used the joint venture to enter the Chinese market. Once familiar with the environment, they started transferring profits to their own subsidiaries by purchasing high-priced core components, which made the joint venture increasingly unprofitable. At the same time, they demanded a larger stake in the joint venture, threatening to withhold advanced technology if not satisfied.
Experts believe that many foreign firms are now more interested in establishing wholly-owned subsidiaries rather than joint ventures. Some even use joint ventures as a means to gain access to the market while maintaining full control, preventing technology leaks and maximizing profits.
China’s auto parts companies, on the other hand, suffer from small production scales, poor product structures, and weak competitiveness. They lack core technologies and development capabilities, failing to meet the needs of specialized division of labor. Many domestic parts companies have annual sales under 1 million yuan, and the top ten companies in the industry hold less than 11% of the market share. Most local parts companies are stuck at the bottom of the automotive value chain.
Globally, the auto parts industry is moving toward cost reduction through reorganization and collaboration, forming a structure of dozens of top-tier companies, hundreds of second-tier ones, and thousands of third-tier players. Specialized production and economies of scale are now the norm. As China’s auto parts tariffs continue to fall, vehicle manufacturers will implement global procurement strategies. With limited technical and R&D capabilities, domestic parts companies risk being absorbed or pushed out of the market.
The National Development and Reform Commission recently issued a warning: China’s auto industry has become overly dependent on foreign capital, surpassing any other country in the world. “Joint ventures won’t improve our technological level if the foreign party controls everything,†said Mr. Wang.
Currently, foreign-funded auto parts companies spend only 0.97% of their revenue on R&D, compared to 1.21% for domestic companies. Many foreign firms treat China as just a production base without significant local development. They also exploit China’s technical weaknesses to maintain control over procurement, leaving joint ventures with little influence over costs.
The original purpose of joint ventures was to bring in foreign technology, products, capital, and management experience to enhance China’s R&D capabilities. Developing auto parts with independent intellectual property and strengthening core competitiveness are the only paths to sustainable growth in the industry.
Shaanxi WLB Auto Sales Co.Ltd. , https://www.wlbauto.com