U.S. Markets open in 4 hrs 29 mins

China tells German auto suppliers to find partners - paper

* Chinese regulator becoming increasingly assertive

* Executive says companies targeted for their expertise

* Several companies say unaware of such Chinese demands (Adds comments from ElringKlinger interview, company reactions, background)

By Edward Taylor and Samuel Shen

FRANKFURT/SHANGHAI, Aug 25 (Reuters) - Three German car parts suppliers have been told by China they can no longer manage their Chinese units independently but need to form partnerships with local peers, the chief executive of auto parts maker ElringKlinger told a German newspaper.

Such a decision, if substantiated, would fit with an increasingly tough stance adopted by China's competition regulator, the National Development and Reform Commission (NDRC), towards the foreign car industry.

It recently began to investigate foreign carmakers following complaints that they were overcharging Chinese customers.

"The Chinese state has told several (German car) suppliers that they are no longer allowed to operate their Chinese subsidiaries on their own but only as part of a joint venture in the future," ElringKlinger's Stefan Wolf was quoted as saying in the Monday edition of Stuttgarter Zeitung.

Wolf said he knew of three companies that now needed to look for a Chinese partner, but did not name them. He said ElringKlinger had not been affected for now.

"If that were to happen, it would be an attack on intellectual property. Fifty percent of the company is being taken away -- this, effectively, is expropriation," Wolf said.

The companies targeted tend to have expertise in key technologies, Wolf told the paper, adding that ElringKlinger had already transferred a lot of know-how to its Chinese division.

"I believe this is an attempt to catch up on know-how and innovation," he told the paper.


Foreign automakers like Volkswagen and Daimler are obliged to form joint ventures in China, but several overseas component makers have not been subject to the same requirements.

Those companies have expanded their operations in China, the world's largest auto market, and grabbed a bigger part of the industry's value chain as car manufacturers cut back on research and development to keep down fixed costs.

In 2012, suppliers spent 37 billion euros ($49 billion) on research and development, equivalent to 69 percent of global automotive research and development spending, according to consulting firm Oliver Wyman.

As a result, their share of overall value creation in the automotive industry is expected to rise to 81.1 percent by 2025 from 77.3 pct in 2012, according to the firm.


German auto parts maker Robert Bosch GmbH's China unit said it has not received any notification from Chinese authorities with regard to changes of foreign investment policies related to the automotive component industry.

"We believe that foreign investment will continue to play a vital role in China's economic development and foresee (an) improving investment environment of fairness and open competition in China," Bosch said in an e-mailed statement. Bosch already has some joint ventures in China.

Continental, another major German automotive supplier, said it had received no requests from the Chinese authorities to form joint ventures. The China units of U.S. engine maker Cummins Inc and France's Faurecia SA said they were unaware of any policy changes.

A spokesman for automotive cable and wiring systems supplier Leoni AG said it too was unaware of a current request, but acknowledged that Chinese authorities had been in touch about forming a joint venture in the past.

China last week fined a dozen Japanese parts makers a record $201 million for manipulating prices, and European car brands including Volkswagen, Audi, BMW and Mercedes are scrambling to lower prices for new cars and spare parts to appease Chinese regulators who have accused some of them of anti-competitive behaviour.

Earlier this month, the European Union Chamber of Commerce in China expressed concern over a recent series of antitrust investigations, saying China, the world's largest car market, was using strong-arm tactics and appeared to be unfairly targeting foreign firms.

"Practices such as informing companies not to challenge the investigations, bring lawyers to hearings or involve their respective governments or chambers of commerce are contrary to best practices," it said at the time.

Chinese investment bank China International Capital Corp said in a report on Monday that the Chinese government, which has the power to block foreign investments, was more likely to urge foreign component makers to "voluntarily" seek Chinese partnership during the approval process, rather than make drastic policy changes in the short term.

(Additional reporting by Jan Schwartz, Andreas Cremer and Christoph Steitz; editing by Tom Pfeiffer)