After over two decades of joint ventures in China's automotive industry, foreign capital has quietly taken control of nearly half of the country’s auto parts sector. This shift has raised concerns among domestic manufacturers who are struggling to keep up with the rapid pace of foreign investment and technological advancement. According to a recent report jointly released by the China Association of Automobile Manufacturers and the National Bureau of Statistics’ Industrial Transport Statistics Department, 54 foreign-invested companies made it into the "2005 China Top 100 Auto Parts" list. During the “Eleventh Five-Year Plan” period, local auto parts companies—already at a disadvantage—face an even tougher challenge as foreign firms continue to expand their influence. **Foreign Capital Expansion** A representative from the Industrial Policy Research Association of the China Association of Automobile Manufacturers noted that as many as 20 of the top 100 auto parts companies are fully foreign-owned. When the list was first published last year, the organizers aimed to highlight Chinese local enterprises, but foreign firms still managed to get on board due to the prestige and brand value associated with the ranking. Since the first wave of auto parts joint ventures driven by models like the Santana, the late 1990s saw a second surge in foreign investments. According to Wu Songquan from the China Automotive Technology and Research Center, these new foreign-funded companies invested significantly more than before, focusing on high-tech components and advanced manufacturing. By the end of 2004, there were over 3,000 foreign-invested auto parts companies in China, according to the Ministry of Commerce. During the “10th Five-Year Plan,” the auto parts industry became a major target for foreign investors. These companies not only brought in core technologies but also leveraged their relationships with original equipment manufacturers (OEMs) to gain a foothold in the market. Shen Ningwu, deputy secretary-general of the China Association of Automobile Manufacturers, pointed out that global auto parts giants have been steadily increasing their investments in China, building comprehensive systems that cover research, development, production, and sales. They are now operating efficiently within China’s industrial structure. The strategy of foreign investment has evolved—from equity participation to full control, from joint ventures to sole proprietorships, and from ownership to market dominance. Jiang Lei, executive vice president of the China Association of Automobile Manufacturers, said that the proportion of foreign capital in auto parts companies is rising, along with their profits. Sun Muzi, a senior car analyst at Xinhuaxin, added that with the implementation of new policies on vehicle characteristics and stronger intellectual property protection, more foreign auto parts companies are entering the Chinese market, signaling a third wave of foreign investment. This new investment boom includes not only traditional players from Japan, South Korea, the U.S., and Germany, but also companies from Switzerland, Spain, and India. In 2005 alone, over 90 international auto parts companies signed up for investment in China, pouring in $4 billion—3.2 times the amount from 2004. Sun Muzi also noted that multinational corporations plan to purchase $50 billion worth of parts from low-cost countries by 2007, with 70% of that coming from China, further fueling the investment boom. **Local Hope and Challenges** Despite the challenges, some local companies are showing promise. Wanxiang Group, ranked number one in the top 100, achieved revenue of 25.215 billion yuan in 2005, marking a significant increase. However, its revenue is still ten times less than that of the world’s top auto parts suppliers. Among the top 100 companies, 19 are engine manufacturers, all of whom hold strong positions. Other key areas include automotive electronics, transmission systems, brakes, and engine components—areas where local firms still lag behind. Due to their smaller scale and lower efficiency, local companies face increasing pressure as OEMs push for lower costs, squeezing their profit margins and making survival harder. Experts from the Industrial Policy Research Association believe that while foreign capital continues to build its advantages, it can only capture a limited portion of the market. However, they warn that foreign investment will likely grow in the future. Some industry insiders argue that developing the auto parts sector is essential for building independent brands. Importing advanced foreign components is seen as a viable solution. As such, imposing strict restrictions on foreign investment may not be practical. According to reports, the China Automotive Technology and Research Center is drafting a study on the development strategy of the auto parts industry, which suggests that the government may impose stricter controls on foreign investment in certain critical sectors. Jiang Lei emphasized that the way forward for local auto parts companies is to become a global procurement hub. With the ongoing shift in the international auto industry toward global production, China must seize this opportunity to build a strong parts industry base that meets the needs of both OEMs and after-sales markets.

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