China's auto part industry is in the midstream of the automobile industry chain. Upstream industries are steel, rubber, plastic and electronic components and downstream industries are whole vehicle manufacturers and auto part suppliers. There are many industries in the upstream, especially the steel industry, which is critical to the national economy. The development of the auto part industry will drive the development of upstream industries. The auto part industry is an integral part of the automobile industry. It is estimated that in 2016, the market size of auto parts in China was over CNY 2 trillion.
In upstream industries, the prices of raw materials of the auto part industry are determined by the market prices of commodities such as steel, oil and natural rubber. In recent years, the fluctuation of the prices of such resources as iron ore, oil and natural rubber have resulted in a huge fluctuation in the prices of steel, rubber, plastic and other chemical materials, rendering pressure on the stability of the operation of China's auto part industry.
In downstream industries, the rapid development of China's automobile industry in the recent decade has also benefited the rapid growth of the auto part industry. Downstream clients of auto part manufacturing are mainly whole vehicle manufacturers and suppliers of auto parts. The concentration rate of clients is quite high, so auto part companies do not have much bargaining power in negotiations with downstream clients. However, auto part suppliers which have leading advantages in a given segment will improve their bargaining abilities through their market position and technology advantages. Therefore, they are capable of transferring costs to the downstream.