«China is the world’s second-largest auto market, and anyone wanting to establish a presence in China must boost the local content of its vehicles to cut costs,” says Yale Zhang, director of emerging-markets vehicle forecasts at CSM Worldwide, an automotive data consultancy. But global automakers can’t source all parts in China. Chinese suppliers still lack the expertise to make high-tech components. Also, automakers and suppliers are reluctant to source parts in China for low-volume vehicles because the limited potential profits don’t warrant the required investments.
China charges a 10 percent tariff on imported parts. But the tariff can rise to 25 percent — the same as entire finished cars — if the value of imported parts in assembled vehicles exceeds certain thresholds. The practice violates WTO rules, U.S., European and Canadian trade officials contend.
«I think the Chinese will probably ask to maintain those barriers for five years,” says Xavier Mosquet, a Detroit-based senior partner at the Boston Consulting Group. The Chinese industry is ” still in its infancy. They could lower (tariffs) by 5 percent, but they still need 10 to 20 percent parts tariffs” to protect and develop their parts