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China's Auto-Parts Makers Gain As Outsourcing Trend Accelera

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Update time : 2015-10-21 15:34:47

The engines of global outsourcing, mergers and acquisitions are likely to power a further increase in the shares of China's biggest publicly traded makers of auto parts, analysts say.

"Outsourcing is accelerating," says Charles Cheung, an analyst at Citigroup in Hong Kong. U.S. and European auto makers are hunting for lower-cost production, he says, while Chinese companies are "looking for overseas acquisition targets." The trend is starting to fuel some listed parts makers, such as Minth Group and Fuyao Group Glass Industries.

In a sign of the growing demand for Chinese-made components, a senior General Motors purchasing executive said during a visit to Beijing last week that the giant car maker would sharply increase the volume of parts it buys from Fuyao and other Chinese suppliers.

Bo Andersson, vice president for global purchasing, said he expects GM's parts purchases in China to rise by an average of 25% annually until 2010. On average, GM now ships about 20 million components a month from China to plants in other countries, he said.

GM isn't alone. Ford Motor has opened a research-and-development center in Nanjing that is focused, initially, on helping expand the company's use of parts from lower-cost Chinese suppliers and working with local firms to improve quality and reliability. Other global auto makers from the U.S., Europe and elsewhere in Asia are also stepping up purchases of Chinese-made components.

As Chinese component manufacturers grow in size and ambition, they are seeking acquisitions to speed expansion and give them access to better technology. Companies such as Wanxiang Group have acquired U.S. companies, and others say they are looking to do the same.

In late August, Mr. Cheung reiterated his "buy" recommendation on Minth after seeing the company's profit margins widen in the first half of the year. Minth's sales are primarily domestic -- it supplies the China operations of international manufacturers -- but it also exports. In the first half of the year, 16% of sales went abroad, according to Citigroup.

Mr. Cheung says increased outsourcing will help drive Minth's growth in coming years