China's auto parts companies: independent research and development

"Actually, the extensive discussion on self-development highlights a fundamental truth: as China's auto industry matures, it must address deeper issues. This was recently emphasized by Mr. Yan Jianlai, a senior expert from the Chinese Society of Automotive Engineers, at an autonomous and innovative auto parts forum. Indeed, China already has massive production capacity and a stable, huge market. Under the global procurement system, if our auto parts companies fail to enter the realm of self-development, it will hinder the continuous growth of the entire automotive industry. Why pursue independent R&D? It’s actually quite straightforward. From an interest perspective, we can see that in 50-50 joint ventures between China and foreign firms, China hasn’t received 50% of the benefits. Meanwhile, foreign investors with their own intellectual property not only share 50% profit with us but also gain significantly more through technology, ultimately controlling the joint venture. Even more concerning is that without the capability for independent R&D in the foreseeable future, we may not be able to maintain even a fair equity ratio in the long run, as this isn't something that can be solved solely through industrial policy. Can we achieve independent R&D? The challenges faced by parts companies are well known: two-way price pressure from OEMs and suppliers, multi-choice supplier strategies, dependency on original equipment manufacturers, reliance on imported technology, and over-reliance on government support. In reality, most domestic host companies are joint ventures with major international players like the '6+3' manufacturers, and they are not independent. How then can component companies engage in true R&D? Yan Jianlai explained that one reason some parts companies avoid self-reliance is because the main engine plant’s joint venture makes the parts companies’ joint ventures seem logical. They get a joint venture and acquire technology — a common practice in China. Then, when choosing between introducing technical equipment or developing independently, many opt for the former. Why? Because it's less risky; you can visit abroad and see how it works. If the imported tech fails, no one is held accountable. So people choose to introduce rather than develop independently. Yan calls this “technological corruption.” He notes that choosing a joint venture as a “white collar” job is a common trend in the parts industry. “Stand up, don’t kneel down!” said Mr. Zhu Jianming, director of the FAW Wuxi Fuel Injection Equipment Institute. With decades of experience in engine and fuel system development, he pointed out that what China lacks is not technology, but confidence. Based on the unique characteristics of China’s social reality, Zhu highlighted the advantages of being a large country. After joining the WTO, China’s domestic market has essentially become an international one. Foreign companies cannot match China’s scale advantage, as they need both domestic and international markets, while Chinese companies can leverage local scale to dominate the market and then expand globally. Additionally, the complexity of China’s demand — with 800 million farmers and a vast middle- and low-end market — provides fertile ground for Chinese enterprises. Once we clarify whether we should pursue independence and whether we can do it, the next question is who should lead the R&D. Should it be local companies or joint ventures? Local companies focus on long-term sustainability, while joint ventures benefit from access to advanced foreign technology. Some suggest giving up part of the Chinese equity in a joint venture to secure technical support. However, we must remember that independent R&D is a core competitive advantage, and its first priority is long-term capability. If we focus only on short-term gains, we risk falling into the trap of “market for technology,” never truly mastering the real value of the technology. At this point, there is no clear restriction on independent R&D. As long as local components are involved, regardless of the process, the final outcome should be independent intellectual property and a strong brand. When should we start? Now! Yan Jianlai pointed out that the Chinese auto industry has never stopped its R&D efforts. Despite repetitive work in absorbing and digesting foreign technologies, the industry has accumulated valuable experience. Some local manufacturers have even caught up rapidly. The independent R&D of parts companies needs support from the main plants, and R&D can be divided into multiple levels depending on technical requirements. While U.S. auto capital faced crises, Chinese companies haven’t seized the opportunity. We hope our companies can find their place in multi-level self-development and continue building their R&D capabilities. Perhaps the next chance is yours!"

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