China Auto Sector Exploding with Potential

An area that I continue to like in China is the country’s auto and auto parts sector. China’s massive auto market surpassed Japan in 2006 to become the world’s second largest market for vehicle sales after the United States. And industry pundits estimating that the country will become the second largest producer of vehicles by 2010, you can understand my optimism.

While auto growth in North America is suffering, the same cannot be said for China, where the number of cars coming on to the roads is staggering, That is why companies like General Motors Corporation (NYSE/GM) and Ford Motor Company (NYSE/F) are in China with significant investments looking for growth opportunities to help offset declines elsewhere. The Chinese consumer remains hungry for cars, especially foreign brands that offer more of a status symbol.

GM announced that sales of its “Buick,” “Chevrolet” and “Cadillac” brands surged 12.7%, topping 590,126 vehicles from the first half of last year, while Ford saw sales rocket 21% to 172,411. The growth is somewhat odd given the situation here in North America with fading sales. Yet, in China, the auto industry is strong due to the government’s decision to maintain low gasoline prices. As long as this continues, automakers should continue to benefit from growth.

In China, I also like the auto parts makers. On the micro-cap side, watch for SORL Auto Parts, Inc. (NASDAQ/SORL; market-cap: eighty-eight million dollars), a developer and manufacturer of automotive air brake valves. The company is ranked number one in China in terms of total market share for air brake valves used in commercial vehicles weighing over three tons, including trucks and buses, a key market.

Also take a look at Wonder Auto Technology, Inc. (NASDAQ/WATG; market-cap: two hundred million dollars), a maker of automotive electrical and suspension parts in China, another interesting small Chinese auto parts stock. The company is also looking at expanding into North America. Its subsidiary, Jinzhou Halla Electrical Equipment Co., Ltd., received its first OEM deal from a major North American OEM automotive manufacturer for the supply of starter and alternator products.