The growing interest of foreign investors in China's auto parts industry is becoming more pronounced, with a clear trend toward sole proprietorship in key sectors. While the Shandong Tianrun Crankshaft Company's partnership with German firm ThyssenKrupp caught industry attention, it was just one example of a broader movement where foreign capital is leading the charge in mergers and acquisitions within the automotive components sector.
Recent data highlights the scale and intensity of this trend. In the first half of 2006, multinational component companies invested over 13 billion yuan in China, with most deals exceeding 100 million yuan. These investments span a wide range of products—from engines and transmissions to brake systems, electronic components, and interior trim. The scope of foreign investment is expanding rapidly, shifting from traditional high-tech areas into more labor-intensive and lower-tech parts.
A notable pattern emerging is the preference for full ownership in key component projects. In 2005, approximately 4 billion U.S. dollars were invested in China’s auto parts industry, with major investments focused on critical assemblies like engines, transmissions, and braking systems. According to available data, nearly 70% of foreign investments in spare parts were in wholly-owned enterprises. For instance, out of 33 Japanese investment projects, only five chose joint ventures, while the rest opted for sole proprietorships, signaling a shift towards full control over production.
Major players such as Delphi, Denso, and Bosch are increasing their presence in China. Bosch, for example, has invested 160 million euros to set up wholly-owned subsidiaries in Changsha and Suzhou, with plans to reach 650 million euros in total investment by 2007. Meanwhile, Delphi has increased its stake in a Chinese joint venture, showing continued confidence in the market.
Experts from the Institute of Industrial Economics at the Chinese Academy of Social Sciences have analyzed that while shareholding restrictions in the auto industry may slow down automaker M&A activities, component manufacturers are becoming prime targets. Upstream industries like chassis and tires are expected to be hotspots, with more multinational firms opting for full ownership.
Looking ahead, future M&A strategies may adopt a "beheading" approach—targeting industry leaders to gain control of key technologies and market shares. This model, known as the "dagger" strategy, involves acquiring top-performing companies to secure long-term dominance. The recent merger between Tianrun Crankshaft and ThyssenKrupp exemplifies this trend, with the German company taking an 80% stake in the deal.
This acquisition has raised concerns among industry insiders, fearing that if key domestic leaders fall under foreign control, China could lose significant influence over critical engine components used in cars, construction machinery, and even military equipment. Similar situations are already unfolding, such as ZF’s attempt to acquire Hangzhou Advance Gearbox Group, another industry leader in gearboxes.
To address these challenges, experts recommend that China develop a clear industrial strategy to protect its economic security. The government should enhance the investment environment for foreign M&A while also providing guidance and regulation to ensure responsible development. A multi-sector review mechanism should be established to assess large-scale M&A activities, preventing local governments from prioritizing short-term investment gains over long-term strategic interests.
At the same time, Chinese auto parts companies must strive for independence and self-reliance. They should focus on innovation, improve core technologies, and build a stronger position in the global market to avoid over-dependence on foreign entities.
Dongguan Liyang Intelligent Technology Co., Ltd , https://www.leyomachine.com