China's oversized and overstaffed auto parts factories could undermine its global competitiveness, despite any benefits that could be derived from joining the World Trade Organization, says a U.S. industry consultant.
'We see a lot of plants there that are built for a capacity that they'll never see,' says Marc Santucci, president of ELM International Inc. in East Lansing, Mich. 'The Chinese recognize that they're inefficient. The question is: What will they do about it? I predict that once foreign investment and foreign competition really begin pouring in, a lot of these guys will be history.'
Santucci's information services company has just completed a new edition of The ELM Guide to the Chinese Auto and Auto Parts Industry, a directory first published four years ago. ELM researchers compiled a list of 825 Chinese parts plants and 110 vehicle assembly and component operations, their various products, the type of manufacturing they perform, how large the plants are, how many employees they have and other vital statistics about the market.
Santucci says many of the listings surprised researchers because of the size of the plants.
'A little stamping plant that would use 150,000 square feet in North America would be 1.5 million square feet in China,' he reports. 'Operations would have the size and employees to support $50 million in business in the United States, but they would only have $100,000 in annual sales.
'You've got an economy that is still state-run,' he says. 'Labor and mortar are practically free, so why shouldn't they build these big facilities?'
Santucci, a former official with the Office of the U.S. Trade Representative, predicts China will benefit if admitted into the WTO.
But it is not clear how China might now shift into an automotive exporter role, he says.
'You might see some shift in production from Mexico to China,' Santucci says. 'But I can't see Chinese plants producing much for the OE side of the world industry.'