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 confront 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 possesses massive production capacity and a stable, large domestic market. However, under the global procurement system practiced by both domestic and foreign companies, if our auto parts companies fail to enter the realm of self-development, it will ultimately hinder the sustainable growth of the entire automotive industry. Why is independent research and development so important? It’s actually quite straightforward. From an interest perspective, we can clearly see that in 50-50 joint ventures between China and foreign firms, China rarely receives 50% of the benefits. Meanwhile, foreign investors with their own R&D capabilities not only share 50% of the profits but also gain much higher returns through technology and control the decision-making power in the joint venture. Even more concerning is that without the capability for independent R&D in the near future, China may struggle to maintain even a fair equity ratio in the long run—this is not something that can be solved by industrial policies alone. So, can China achieve independent R&D? The challenges faced by auto parts companies are well-known: squeezed margins from OEMs and raw material suppliers, multi-choice supplier strategies, dependency on OEMs, reliance on imported technology, and over-reliance on government support. In reality, most major domestic automakers are joint ventures with international "6+3" manufacturers and are not truly independent. How can component companies then pursue independent R&D? Mr. Yan Jianlai pointed out that one reason some parts companies avoid R&D is because the main engine plants' joint ventures make the parts companies’ joint ventures seem logical. They get a joint venture, acquire technology, and this has become a common practice in China. Then comes the question: should they invest in self-reliance or introduce technology? Many choose the latter because it’s less risky. They can send people abroad to learn, and if the imported tech fails, no one is held accountable. As a result, many opt for easy solutions rather than true innovation. Yan calls this a form of “technological corruption.” He notes that choosing a joint venture as a “white collar” job is a widespread 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 believes that what China lacks is not technology, but confidence. Based on China’s unique social context, Zhu points out the advantages of being a large nation. After joining the WTO, China’s domestic market has essentially become an international one, making it difficult for foreign firms to match China’s scale advantage. While foreign companies need both domestic and global markets, Chinese firms can leverage local demand to build scale, then expand globally. Additionally, the complexity of China’s consumer demand—especially with 800 million farmers seeking affordable products—creates a fertile ground for domestic enterprises. Now that we’ve clarified the importance and possibility of independent R&D, the next question is who should take the lead. Should it be local companies or joint ventures? Local R&D emphasizes long-term sustainability, while joint ventures offer access to advanced foreign technologies. Some suggest giving up part of the Chinese stake in joint ventures to secure technical support. However, independent R&D must remain a core competitive strength, prioritizing long-term capability over short-term deals. Otherwise, we risk falling into the trap of “buying technology,” where we end up losing the real value of innovation. At this point, it’s clear that there are no strict limitations on independent R&D. As long as local components are involved, regardless of the process, the final outcome should be independent intellectual property and branding. When should we start? Now! Mr. Yan Jianlai stressed that the Chinese auto industry has never stopped its R&D efforts. Even though we’ve done a lot of repetitive work in absorbing and improving foreign technology, we’ve gained valuable experience. Some local manufacturers have even caught up quickly. Independent R&D in parts companies requires support from the main plant, and it can be divided into multiple levels based on technical needs. In the face of crises in the U.S. auto industry, Chinese companies haven’t found opportunities in others’ misfortune. We hope that our companies can find their place in multi-level self-development and continue building their own R&D capabilities. Perhaps the next opportunity is yours!"

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