From October 21 to 22, 2020, the "2020 China Automotive Supply Chain Conference" (formerly the "China Automotive Parts Industry Annual Conference and Summit Forum"), jointly hosted by the China Association of Automobile Manufacturers and the Xi'an Municipal People's Government, was held in Xi'an, Shaanxi Province. The theme of this year's supply chain conference is "Cultivating New Opportunities, Planning New Chapters, Opening New Situations - Contributing to the Construction of a Safe and Controllable Automotive Industry Chain." It explored the "14th Five-Year Plan" ideas, grasped the industrial situation, analyzed the global automotive supply chain development dynamics, and helped build a safe and controllable automotive industry chain. Among them, at the "Cultivating New Opportunities, Planning New Chapters, Opening New Situations - Contributing to the Construction of a Safe and Controllable Automotive Industry Chain" conference forum held on the morning of October 21, Chen Bin, executive vice president of the China Machinery Industry Federation, delivered a speech. The following is a transcript of the speech:

　　Chen Bin, Executive Vice President, China Machinery Industry Federation

　　Chen Bin: Respected leaders, distinguished guests, ladies and gentlemen, good morning!

　　I am very pleased to attend the 2020 China Automotive Supply Chain Conference. Based on the successful holding of seventeen China Automotive Parts Industry Annual Conferences, the 2020 China Automotive Supply Chain Conference, hosted by the China Association of Automobile Manufacturers, is a new and upgraded platform for communication and exchange in the Chinese automotive industry, bringing together elites from the complete vehicle and parts industry, professional media, and government leaders, in response to new situations and requirements.

　　The main theme of this forum is cultivating new opportunities, planning new chapters, and opening new situations to help build a safe and controllable automotive industry chain. As a guiding unit of this conference, I would like to extend my warm congratulations on the convening of the conference on behalf of the China Machinery Industry Federation and express my sincere welcome to guests from all over the country and the world. I will also share some of my thoughts on the topic of integrated innovation to enhance the competitiveness of China's automotive industry chain for your reference.

　　1. The safety of the automotive industry chain has received widespread attention under the new situation. The world today is undergoing changes unseen in a century. The international situation has undergone profound changes, the world economy is sluggish, unilateralism and trade protectionism are intensifying, causing great shocks to the economies of various countries. China's economic and social development is at the stage of completing the "13th Five-Year Plan" and the upcoming "14th Five-Year Plan," and it also faces many difficulties and challenges. There are structural contradictions and systemic obstacles accumulated over many years, as well as a series of impacts from changes in the international situation. When international instability and uncertainty increase, it is urgently needed to build a new development pattern with domestic circulation as the mainstay and domestic and international dual circulation promotion, to improve industrial foundation capabilities and the modernization level of the industrial chain as a breakthrough point for industrial transformation and upgrading, to better safeguard China's economic security, and to expand the space for economic development. Against this backdrop, China's automotive industry, as a pillar industry of the national economy, has placed the issue of industrial chain security on the agenda.

　　2. Auto parts are the core of the automotive industry chain safety issue. The automotive industry is currently the largest single-product manufacturing industry in China and is also the most widely concerned industry, having a significant impact on the development of the national economy. When summarizing and evaluating the achievements of the automotive industry since the reform and opening up, more attention has been paid to the production and sales scale of automobiles and the development of independent automobile brands, but the foundation of the automotive industry, namely the development of China's automotive parts industry, has been overlooked. Since China's automotive industry opened up, the development of automotive parts began in 1987 with Zhu Rongji's personal initiative on "introducing technology, digesting and absorbing, and domesticating in one go." The domestication of the Santana sedan was the most important project. It benefited from the "Interim Provisions on Promoting the Domestication of Passenger Cars through Tax Incentives" issued by the General Administration of Customs, the State Planning Commission, and the State Taxation Administration in 1990. Further development occurred after the automotive industry policy was released in 1994, leading to the full opening up of automotive parts. In my opinion, the greatest achievement of China's automotive industry since the reform and opening up is the significant development of the automotive parts industry, which has supported China's automotive industry's world-leading production and sales scale for more than 10 consecutive years, and of course, it has also supported the development of joint venture automobile brands and China's independent automobile brands.

　　In 2019, China's gasoline and diesel vehicles and new energy vehicles achieved operating revenue of 3.98 trillion yuan, and automotive parts manufacturing, including engine manufacturing, achieved revenue of 3.77 trillion yuan, with a whole-parts ratio of 1:0.95. From January to August this year, the automotive industry gradually recovered from the impact of the COVID-19 epidemic, with gasoline and diesel vehicles and new energy vehicle manufacturing achieving operating revenue of 2.3 trillion yuan and automotive parts achieving 2.27 trillion yuan. The data shows that the revenue scale and proportion of China's complete vehicles and parts industries are close to 1:1. Compared with the whole-parts ratio of about 1:1.7 in major automotive industrial countries internationally, China's automotive parts industry still has considerable room for improvement. Compared with other industries with overcapacity in China's manufacturing industry, the parts industry also has considerable room for growth. However, China's automotive parts industry currently has many shortcomings, prominently manifested as being large but not strong, insufficient high-end products, excessive low-end products, and many shortcomings and breakpoints in the upstream and downstream of the industrial chain, which urgently need to be addressed. Specifically, the upstream of the automotive parts industry chain mainly includes basic materials such as electronics, steel, non-ferrous metals, and chemicals, as well as special functional materials, specialized production equipment for R&D, testing, manufacturing, and inspection, industrial technology infrastructure capabilities such as standard systems, methods, processes, industrial software, and information data, and basic manufacturing processes such as casting, forging, heat treatment, and welding. Among these, the shortcomings of special functional materials and specialized production equipment are particularly prominent, and the dependence on foreign countries is very serious. Studies have shown that about 70% of China's automotive production equipment relies on imports, more than 80% of engine and transmission production equipment relies on imports, and 90% of automotive R&D, testing, and inspection equipment relies on imports, while special functional materials almost entirely rely on imports. Therefore, industrial materials, control systems, and specialized manufacturing equipment closely related to precise control, precision manufacturing, and precision measurement are the main shortcomings in the upstream of the industrial chain.

　　The downstream of automotive parts is the complete vehicle market. As of the first half of 2020, the national automobile stock reached 270 million vehicles, and it is expected that the annual production and sales scale will be around 26 million to 28 million during the "14th Five-Year Plan" period. The continuously growing market stock and relatively stable annual market scale have brought reliable market demand to the parts industry, while the continuously deepening development of joint venture automobile brands and the continuously growing independent automobile brands have made the competition in the parts industry more intense. Among them, domestic joint venture automobile enterprises have a high starting point. After years of cultivation, they have a large market scale, obvious technological advantages, a complete industrial chain system, and a stable whole-parts relationship. Domestic independent automobile brands have a relatively low starting point, the market is still being developed, technological advantages are accumulating, the supply chain system is being improved, and the whole-parts relationship is still developing.

　　In general, the core issue of building a safe and controllable automotive industry chain is to accelerate the development of the parts industry, address shortcomings, strengthen strengths, and promote its advancement to the mid-to-high end of the value chain, so as to effectively support the healthy and sustainable development of China's independent automobile brands.

　　3. Insufficient industrial integration is an important reason for the problems in China's automotive industry chain. The shortcomings of the automotive industry chain represent the shortcomings of China's manufacturing industry. For a long time, the overall level of China's manufacturing industry has been hovering in the mid-to-low end. The national proposals for industrial structure adjustment and upgrading of manufacturing to the mid-to-high end have rarely seen significant progress, especially in the three key areas of industrial special materials, industrial software and control systems, and specialized production and testing systems, which have always been subject to external constraints. Since the reform and opening up, we have spent hundreds of billions of US dollars importing raw materials, equipment, and technology. We have bought everything that can be bought with money, but what we cannot buy will always remain unobtainable. The three areas I mentioned above are things we can never buy. In addition to technological reasons, a very important reason is the rigid management system, departmental monopolies, regional divisions, and industry closures in our country.

　　Firstly, the issue of industrial materials. We have invested significant effort in innovation and development; however, our products, while similar in appearance, fall short in reliability, precision, and lifespan compared to foreign counterparts. This is primarily due to the relatively low level of our raw materials and insufficient integration between our mechanical manufacturing and raw materials manufacturing sectors. For some time, particularly in the last 20 years, following the market demand driven by the real estate sector, the steel industry has focused on construction materials, including rebar, while the electrical wire and cable industry has also received significant attention due to its high profitability. The aluminum industry has focused on aluminum alloy windows and doors. We rely entirely on imports for key specialty materials, including both ferrous and non-ferrous metals. The three major oil companies focus on oil and gas exploration and refining, generally not extending to downstream processing, resulting in complete reliance on imported downstream refined products. The import dependence on small-volume but crucial industrial specialty and functional materials persists. The inability to import these materials necessitates the import of finished products, explaining the long-standing reliance on imported key components and systems in China's automotive industry. Without material innovation, industrial innovation is difficult.

　　Secondly, the issue of industrial software and control systems. Currently, most of the research and development, design, processing, control, and management software and control systems used by Chinese manufacturing enterprises rely on imports. This is mainly due to insufficient integration between the mechanical and electronic information industries, resulting in significant challenges in mechatronics and a persistent disconnect in the integration of information technology and industrial automation, despite efforts to promote it. To elaborate, China has long prioritized mechatronics. In the late 1980s and early 1990s, the Ministry of Machinery and the Ministry of Electronics were merged under Minister Zou Jiahua (phonetic), but the merger was short-lived due to incompatibility between the two sectors. In 2008, recognizing this issue, the Ministry of Industry and Information Technology was established to promote the integration of information technology and industrial automation, achieving significant progress, yet a disconnect remains in some areas. This is a crucial systemic and managerial issue. China's management system, inherited from the Soviet planned economy of the 1920s and 1930s, is highly compartmentalized, hindering industrial integration and fostering isolated development. Research and development in the overlapping areas of these two major industries is largely vacant. A prime example is industrial control software. In process industries like steel and petrochemicals, control software and systems were entirely imported, raising concerns about industrial security. However, few addressed this issue until Zhejiang University Control (phonetic) made a breakthrough, followed by several others, now holding over half of the DCS market. Who is developing the crucial numerical control (NC) systems for discrete manufacturing? Despite nearly 20 years and over 10 billion yuan in government investment in high-end NC machine tools, nearly 90% of NC systems remain imported due to the lack of involvement from major players in the electronics industry, which has largely focused on consumer electronics. Who stepped in? Huazhong Numerical Control, universities, and three machine tool manufacturers—Shenyang Machine Tool, Guangzhou Numerical Control, and Dalian Guangyang (phonetic)—who are competing against international giants like Siemens and Fanuc, highlighting the ongoing challenges. During the push for domestic parts, a common observation was that while purely mechanical manufacturing was strong and competitive globally, automotive electronics lagged significantly. Mechatronic automotive components were virtually absent, entirely reliant on imports. This underscores the importance of modern manufacturing as the integration of manufacturing technology, materials technology, and information control technology. Synergistic development and integrated innovation are crucial for advancing to the mid-to-high end. Insufficient integration and synergy have hindered structural adjustment and industrial upgrading, with control systems and overall efficiency lagging behind, making upgrading difficult.

　　Thirdly, specialized production equipment and testing systems represent an often-overlooked weakness and pain point in China's manufacturing sector. Most Chinese manufacturing enterprises rely entirely on imported key production and high-end testing equipment. Visits to these enterprises invariably showcase imported equipment from Germany, Japan, and Switzerland, highlighting their control over product quality and precision. This reliance on imported equipment poses a serious threat to industrial security, partly due to insufficient integration between equipment manufacturers and users, hindering the ability of domestic manufacturers to compete with foreign counterparts. However, industrial policy also plays a role, which I will not elaborate on here.

　　Fourth, innovative institutional mechanisms and integrated development to build a secure and controllable automotive industry chain. Building a secure and controllable automotive industry chain and enhancing its competitiveness requires fundamentally addressing issues of industry monopolies, departmental divisions, and independent operations, focusing on promoting cross-industry integration.

　　First, breaking down industry barriers and promoting cross-field integration. Weakening professional and departmental barriers, breaking down industry boundaries and resource segmentation, opening up enterprise walls, and promoting exchanges, cooperation, and integrated innovation between the automotive industry and related sectors such as software, materials, and new energy industries are crucial to filling research gaps in multidisciplinary fields and achieving breakthroughs in automotive electronics and mechatronic components. Therefore, we suggest that future automotive supply chain conferences seek support from the China Electronics Information Industry Association, China Iron and Steel Industry Association, China Nonferrous Metals Industry Association, and China Petroleum and Chemical Industry Federation to hold special conferences on automotive electronics and automotive specialty materials, facilitating supply and demand matching between automotive parts companies and electronics and raw materials companies, and proposing integrated innovation ideas and plans. Relevant government departments should also provide support.

　　Second, collaborative innovation between automakers and parts suppliers to build a secure and controllable industrial chain system. Automotive manufacturers should prioritize building industrial chain systems, as independent parts are essential for independent automotive brands. The intense competition between joint venture and independent brands is essentially a competition of automotive parts supply systems, encompassing automotive chains, industrial chains, and value chains. As major Chinese automakers develop new products, related parts companies must participate proactively, forming the basis of the relationship between automakers and parts suppliers. Both automakers and parts suppliers need a spirit of mutual support and an awareness of the potential consequences of failure. Only through concerted efforts and collaborative innovation can a secure and controllable automotive industry chain be built, paving the way for new breakthroughs.

　　Third, emphasizing demand-driven development to accelerate the promotion and application of domestic equipment. This involves user-led initiatives, with automotive and parts companies collaborating with academia and research institutions to break through the limitations in automotive-specific production and testing systems. A recent article, "The Secret of Japan's 27 Years of Dominance in Industrial Machinery," highlighted the importance of meeting the needs of advanced enterprises, such as the automotive industry. Japanese machine tool manufacturers collaborated with major automakers to accelerate equipment development, leading to significant success. In contrast, the stagnation of China's machine tool and instrument industries is partly due to their limited involvement in the automotive sector, resulting in a lack of recognition and opportunities. Demand and market are crucial; without them, there is no industry, and without demand upgrades, there are no industry upgrades. Automotive and parts companies should take the lead in supporting domestic machine tool and instrument industries in enterprise upgrades, promoting a domestic-led cycle and driving breakthroughs and upgrades in equipment manufacturing.

　　Fourthly, strengthen policy guidance to address breakpoints and bottlenecks in the industrial chain. Building a secure and controllable automotive industry chain requires not only the joint efforts of upstream and downstream enterprises, but also strong policy guidance and financial support. Therefore, it is recommended that relevant government departments establish a special project for a smooth industrial chain, to identify all obstacles and blockages in the automotive industry chain, create a list, and clearly require the vehicle manufacturer to take the lead, with industry, academia, research, and government working together, integrating innovation, upholding the right principles, and working diligently for a long time. I believe that in the near future, we will be able to build a secure and controllable automotive industry chain.

　　Finally, I wish the conference a complete success. Thank you all.

　　(Note: This article is compiled from on-site shorthand and has not been reviewed by the speaker.)

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