Huge opportunity for Thai parts makers

China has finally emerged as the world’s largest automotive economy, and it is still growing.

In 2003, China became a member of the World Trade Organisation (WTO), and this gave auto-makers as well as auto-parts makers the confidence to increase their investment in the country.

“The Chinese automobile industry has had an average growth of 20 per cent per year, and in 2007 it was able to produce as many as 9 million vehicles. It stepped up to become the world’s No 3 auto-maker that year, and entered the first phase of global auto exports,” said Dr Phaichit Viboontanasarn, minister (commercial) of the Office of Commercial Affairs, Royal Thai Embassy.

“From 2002-2007, auto production in China had increased by an average of 1 million units per year, he added.

Even during the global financial crisis, the Chinese auto industry maintained robust growth, and it overtook the United States as the world’s No 2 producer in 2009. A larger number of current global models were now produced in China, unlike in the past where production lines were set up for outdated models. It is estimated that more than 220 vehicle models were manufactured in China in 2009, and exports make up 11 per cent of total production.

The global financial crisis and the oil crisis caused the US auto market to contract dramatically. Detroit has lost a big chunk of its share in the large-vehicle market, and does not have the capability to compete in the small-car market.

In 2010, China produced more than 17 million vehicles, meaning production had grown by 3 million units during the last three years. It could easily be said that the last decade was a golden era for the Chinese automobile industry, and it has now earned the status of the world’s “New Detroit”.

 

Automechanika Shanghai 2011

 

With all roads heading towards China, global automotive events are also being staged in this country.

The Automechanika Shanghai 2011, jointly staged by Messe Frankfurt (Shanghai) and China National Automotive Industry International Corporation (CNAICO) from December 7-10, attracted 3,600 companies from 36 countries, including Thailand.

It is clear that presently the Chinese auto-parts industry has grown into a worthy global contender. The participation of global brands such as Panasonic, Philips, Schaeffler, Delphi, Brembo, Continental, Bosch and others, along with the 60,000 visitors is a result of the Chinese government’s support for the automobile industry, with more than Bt10 billion being injected every year.

Lin Hailin, chairman of CNAICO, said the Chinese auto market has accumulated sales of more than 100 million vehicles.

“The Chinese automobile industry had a value of 4.34 trillion renminbi last year while the auto-parts industry was valued at RMB1.5 trillion last year. We are expecting a 4-per-cent growth this year and another 4 per cent next year because the government has a policy to maintain this level of growth in order to maintain economic balance,” he said.

Automechanika Shanghai is an event that specialises in auto parts and related industries, and attracts foreign investors and parts makers, including from Thailand, to China. This is another major stage for global parts makers to meet up as well as to attract foreign investment as well as expand export markets.

In the past, Thailand had little collaboration with China in terms of auto parts. The event is intended to show investors the policies of both countries, as well as open trade channels that would help Thai parts manufacturers to pursue trade with China effectively and without incurring a deficit.

Thai auto parts are manufactured with higher technology and craftsmanship, helping it achieve global standards, and are well-known in the global market. Although Thai auto parts cost more than those made in China, the Chinese auto industry still needs high-quality parts for production of modern automobiles.

 

Future of Thai auto parts in China

 

China is considered a real deal in terms of trade, especially the western part of the country, which is suitable for automobile production. Shanghai is considered the financial centre and is an important commercial centre for China. It is also one of the world’s leading manufacturing bases for passenger cars.

Thavorn Chalatsathien, spokesman of the Thai Auto Parts Manufacturers Association (TAPMA), said exports of Thai-made auto parts are expected to decline by 10 per cent this year from the Bt400-billion target due to the east Japan quake and tsunami as well as the Thai flood crisis.

“So, if Thai auto-parts makers can go ahead and find new markets, it would be a great opportunity for us in the future,” he said.

Visuth Kasemmongkolporn, director of the Thailand Automotive Parts and Accessories Association (TAPAA), said Automechanika Shanghai represents an important market for Thailand in the future.

“In the past, Thai auto-parts makers concentrated on exporting products to other markets such as the US, India, the Middle East and Europe. But from now on, we cannot overlook China, and this year our group has brought over 15 Thai companies to participate in the Automechanika Shanghai 2011. 

“Thai auto-parts manufacturers started to enter the Chinese market about three years ago, and when looking at the whole scenario, we can see that there is still plenty of business opportunities for Thai auto parts. Of course, competition is fierce, especially in terms of pricing, and if Thai auto parts can initially gain a market share of 1 to 3 per cent in the Chinese auto-parts market, it would be considered a success,” he said.

Visuth said presently Thailand is still far away from that goal, and that manufacturers with potential to break into the Chinese auto-parts market are producers of rubber components as well as air-conditioners.

“Since China became a WTO member, the non-tariff barriers have changed. For example, the industrial tax has been lowered to 9.3 per cent which is a good opportunity for Thai companies. Products that can penetrate and compete in the Chinese market must be high-end products with high technology,” he added.

Visuth said Chinese-made parts are mostly low-priced and usually have low quality, making it easy for customers to make a purchase decision.

“But today, the consumer behaviour in China has changed, and a large number of customers are more interested in quality than price. This is where we need to seriously ask the government for support,” Visuth said.

The whole scenario gives the Thai auto parts industry a chance in the Chinese automobile industry if the Thai government lends serious support.