China's auto parts industry is facing tough challenges as the economic downturn puts the brakes to the country's automobile sales growth.

This will add to the list of problems the sector already has to deal with, such as industry fragmentation, limited export channels and poor R&D capacities.

Purchase orders received by Chinese auto parts suppliers are decreasing sharply due to plunging demand from automobile manufacturers, company executives say.

"The orders our company receives have dropped 50 percent," said Hu Zhengzhi, board chairman of Shanghai Dayou Co Ltd, a plastic mould manufacturer for auto use.

Founded in 2004, the company once realized sales of 50 million yuan in its peak period. In 2008, it set up a branch in Beijing. However, due to the slack auto market, the company has had to suspend its expansion project in the city.

The number of auto part suppliers in China exceeded 10,000 in 2006, according to the National Bureau of Statistics.

Chen Wenkai, president of Gasgoo.com, China's largest automotive B2B marketplace, estimates 5 percent, or at least 500 auto part suppliers, will be bought out or eliminated.

In Zhejiang province where manufacturers of small-piece auto parts concentrate, many have stopped production or even gone bankrupt, according to China Business News.

"European and US vehicle manufacturers tend to order more low-cost auto parts form Chinese suppliers to maintain competitiveness," Chen said.

"Purchase of low-cost auto parts will increase from 23 percent in 2007 to 40 percent in 2010," said Xu Qingzhao, deputy director of purchasing at Peugeot-Citroen Asia.

But experts say Chinese auto parts firms should become more innovative.

"Chinese auto part suppliers should find more channels such as exhibitions and online trading to promote export," said Wen Jiaping, president of Beijing Runew Automobile Consulting Co Ltd.

Auto part exports reached 15.37 billion yuan during the first half of 2008, according to China Association of Automobile Manufacturers.

Foreign auto giants such as Ford plan to transfer production and research and development into China to reduce costs.

"Chinese auto part manufacturers should invest more in R&D to prepare for the opportunities," said Chen.

Source:China Daily