A key factor for European suppliers is the strength of the Volkswagen group in the booming Chinese market.
The VW group, including its Audi subsidiary, is the market leader in China by a considerable margin. VW's Chinese sales of 511,000 units last year are expected to increase to 1 million within a few years. Total Chinese market sales are forecast at 1.5 million units this year, up from 1.3 million in 2002.
European companies such as Brose, Hella and Valeo are major suppliers to Volkswagen group in Asia.
In addition, European truck makers such as DaimlerChrysler and MAN are well-positioned in China's heavy-duty market.
Chinese assembly volumes have grown sharply in the past few years. VW says it will raise its existing capacity to 700,000 units a year in the short term.
The boom in production has been accompanied by an increase in the scale economies of suppliers' Chinese operations. The technical competence of the operations has also increased, and they have become internationally competitive in the process. As a result, suppliers are increasingly looking to use their Chinese operations as an export base.
"Volumes in China are still too low to justify high-volume exports," says Bosch Chairman Hermann Scholl. But Bosch has had success exporting do-it-yourself tools such as power drills produced in China to European markets.
"If you have the right structure of your production in China, you can be very profitable with exports out of China," says Scholl.
The second tier of Chinese suppliers has improved. A few years ago such suppliers were regarded as badly-managed companies that produced low-quality components. Leading Euro-pean Tier 1 suppliers such as Valeo are now looking to source a growing share of parts from China's Tier 2s.
The growing number of supplier exhibitors at the Shanghai auto show this month demonstrates the interest of the Europeans in China and throughout Asia. Suppliers such as Valeo and ZF Friedrichshafen will be present at the show for the first time. Meanwhile, commitments to industry events elsewhere in the world are being curtailed.