China's Low-Cost Labor To Shake Up International Auto Parts Indusutry

Tuesday 6:01 am ET

SHANGHAI -October 22, 2002 Dow Jones reports that China's low-cost labor is resulting in lower automobile components prices globally, and will inevitably lead to a shakeup of the world's components manufacturing industry, said the head of one of China's biggest components makers.

Speaking at an international automobile industry conference in Shanghai on Tuesday, ASIMCO Inc. founder and Chief Executive Officer Jack Perkowski said part of the industry restructuring could involve China-based parts makers acquiring their U.S., Japanese, or European counterparts.

"If you want to be making engineer products, which auto components are, there is no better place to be doing it than China," said Perkowski.

"You not only have a vast labor supply, but you also have a growing pool of high quality engineers," he said, noting that 37% of Chinese undergraduates studied engineering, versus only 6% in the U.S.

He added that there were 10 million new workers entering the labor market in China each year, keeping the labor costs low, while in the U.S. the labor market was shrinking.

Beijing-based ASIMCO, whose investors are mainly U.S. institutions, including General Electric Pension Trust, has seven major production centers in China, where it produces auto parts, including diesel fuel engines, brakes, and piston rings.

The company, which was founded in 1994, has seen exports jump from zero in 1997 to 20% of estimated sales of $210 million this year, with a net income of $ 12 million.

Through international on-line bidding for manufacturing contracts, he said, he has seen the pressure mount on prices globally.

"In most of those e-bidding events, we end up being one of the lowest periphery bidders, and if you look at the prices that we end up with, it is anywhere from (60% to 85%) of the reserve price (typically set at 5% or more below current cost)," Perkowski said.

Although prices are dropping abroad, in China the prices of components for passenger cars remain at the artificially high levels set by state-run companies when foreign automakers, such as Volkswagen AG , imported parts.

However, Perkowski said that would change soon, and prices were likely to fall now that China is a member of the World Trade Organization.

Perkowski said more and more foreign companies are likely to move factories to China to take advantage of the inexpensive labor, but added that China-based component makers are also starting to take interest in acquiring companies in the U.S., Europe, and Japan.

Chinese companies acquiring foreign firms could get new market channels and technology, and boost their share price on the mainland stock market, Perkowski said. He added that with the Chinese government encouraging foreign companies to list in China, ASIMCO is discussing possibilities of listing as well.