Auto part makers in China rush

India’s leading auto component makers are making a quiet move. As many as over 20 Indian auto component makers, which include big boys such as Talbros, Ashahi Glass, ZF Steering Wheels, GNA Axles, Luxite and Sundaram Brake Linings, are winging their way to China this week to see the possibility of setting up manufacturing plants in the country.

And they are looking at supplying their products not to Chinese companies but global auto makers ranging from BWW, Mercedes, General Motors, Ford amongst others. These global majors have been outsouring from Indian manufacturers and are aware of their reliable quality.

With Indian auto ancillaries supplying high-quality components to almost every multinational auto majors in the world, moving into China help them leverage this privileged relationship with the same players in China.

“The main reason for foreign companies to set up plants in China is to take advantage of the large Chinese market,” says Suresh Krishna, MD, Sundram Fasteners, the first Indian auto parts company to foray into China four years ago.

“In fact, we started the plant for exports from China in the first phase. In the second phase, we have now started supplying to MNCs in China. In the third phase, we will be covering the Chinese auto companies,” adds Krishna.

Others have also taken their first tentative steps in this direction. Bharat Forge (BFL) acquired a 52 per cent stake in China’s largest foundry unit, FAW Corporation, to become FAW Bharat Forge (Changchun) Co.

The JV has catapulted BFL to become the largest player in forgings & castings in China. And just a few weeks earlier, Tata Autocomp GY Batteries (TGY), a 50:50 JV between Tata Autocomp Systems (Taco) and GS Yuasa International (GYIN) announced plans to set up a manufacturing facility in Nanjing, to be operational in the next 3 months.

Of course, there is a cautious optimism about entering China. Says Arvind Dham, managing director of Amtek Auto, “We will surely go to China by 2010. At the moment, our first stop is Eastern Europe which is also a growing market. We have narrowed down on Rumania. China is an interesting market but not that easy to enter.”

The Chinese domestic auto industry is the fastest growing auto market in the world overtaking the United States’ auto industry. “To tap the Chinese auto industry, one has to be present in China,” explains Vishnu Mathur, executive director, Automotive Component Manufacturers Association of India (ACMA).

The reason: to encourage domestic production of components, the Chinese government stipulates that a vehicle with more than 40 per cent localisation will attract the MFN general duty of between 8 and 12 per cent. Else they attract as much as 25 per cent duty.

Another big attraction is the cost of doing business which directly related to the taxation structure. “It’s 25 per cent cheaper to manufacture goods in China than in India,” explains Mathur.

“While the Chinese have a GST, India has cascading taxes like octroi and special taxes that are yet to abolished. These add to the costs,” adds Mathur.

India has a roadmap for a common GST to be realised by 2010.

Apart from reliable infrastructure such as power, a managed yuan that makes exports competitive and a flexible hire & fire labour policy, China also has a huge stockpile of commodities available at competitive rates to companies operating in China.

“With their high export duty on commodities, raw material such as iron ore is in surplus,” said one industry observer.