In 2008, China became the fourth-largest exporter of auto parts in the world after Germany, the United States, and Japan (International Trade Administration 2009, 2010). The latest trade data from the International Trade Administration, which aggregates the auto-parts industry broadly and includes tires, glass, bodies, and other commodities which other trade aggregations exclude, show that in 2010, estimated Chinese exports of auto parts approximated $43.86 billion — an increase of 162% from $16.7 billion in 2005 (International Trade Administration 2011).

For China, most auto-parts imports consist of higher-end systems and components to incorporate into Sino-foreign vehicle makers’ autos. Japan accounts for about half of total imports, and Germany about one-quarter, reflecting the roles of Volkswagen in the mass market and BMW and Mercedes-Benz in the luxury market (CAAM 2010–2011, Netscribes 2010–2011, China Customs 2010–2011). The three companies have great reliance on imported components. In contrast, China imports very little from the United States, reflecting the presence of American companies at the top end of China’s auto-parts industry.

Unlike the Japanese and German JVs, U.S. automotive JVs rely to a much greater extent on Chinese auto-parts manufacturers, thereby contributing to the bilateral trade imbalance by reducing their use of U.S.-made parts. The United States has also been by far the leading export destination for Chinese auto parts, indicating the extensive integration of U.S. auto-parts companies in the Chinese export machinery.

In auto parts, China runs trade deficits with every other major auto producer, including Japan, South Korea, and Germany. In contrast, China’s trade surpluses on auto parts with the United States constitutes a notable exception. As other foreign auto companies operating in China have linked to auto-parts suppliers back home, U.S. auto companies have increasingly cut ties with U.S. suppliers or encouraged them to manufacture in China.

In 2006, Ford announced that, to cut costs, the company planned to double the value of the auto parts that it sourced from China to about $3 billion from about $1.6 billion in 2005 (Dyer 2006). In 2008, GM, which was buying 20 million parts a month from 190 Chinese auto parts suppliers, announced that it intended to buy more and increasingly sophisticated car components in China for worldwide assembly.5 The company stated that it would increase its procurement spending in China by 25% per year in the period 2005–10 (Zubko 200 . U.S. global auto strategy has progressively centered around manufacturing in China and exporting back home. Consequently, China’s exports of auto parts to the United States are three times those of China’s next highest trading destination, Japan.

China’s auto-parts exports are expected to grow dramatically in the future, driven primarily by two factors: exports to overseas automakers and exports to overseas Tier-1 suppliers. Foreign, primarily U.S., automakers’ captive centers in China will probably supply their home bases directly. For example, GM and Ford have recently announced that, by 2010, they will purchase more than $10 billion and $7 billion worth of auto-parts and accessories, respectively, from their sourcing centers in China. In 2008, China overtook Germany to become the fourth-largest source of imports for U.S. auto parts (after NAFTA partners Canada and Mexico, and Japan), and in 2011 is among the fastest-growing sources of U.S. imports (along with Korea and Mexico). As Figure J shows, from 2000 to 2010 imports of Chinese auto parts into the United States increased about eight-fold and are expected to continue to increase. During the same period, the U.S. trade deficit with China on auto parts increased nine-fold.

In 2009, the NDRC, China’s central economic planning agency, released Directives on Promoting the Healthy and Sustainable Growth of Domestically-Made Auto Products to increase auto-parts exports. According to the directives, the government will facilitate auto and auto-parts manufacturers’ efforts in getting loans from domestic banks to fund their exports. The government has also pledged the services of the state-owned export-credit insurer, China Export & Credit Insurance Co., to manage credit risks in overseas markets for exporting auto-parts companies (China Automotive Technology & Research Center 2009).

The Chinese government has additionally pledged to help domestic auto and auto-parts companies to build overseas R&D centers and to acquire foreign peers to improve their technology and product-development capabilities.

With its support, the government hopes that domestic automakers can expand their exports from the current mainly Dongfeng commercial vehicles to passenger vehicles, compact cars, and small- and medium-sized buses, according to the directives. It also expects domestic parts suppliers to shift their export focus from mechanical products to machinery and electrical and electronic products. With its newly announced support measures, the NDRC expected to see the export value of automobiles and auto parts made by domestic companies grow 10% annually over the next two years and reach $85 billion by 2015 (China Automotive Technology & Research Center 2009).

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