Small parts makers are more vulnerable to rising costs because of their small scale production. That means market leaders have more opportunities to take over smaller rivals.
"Industrial consolidation will enable industry leaders to gain more market share through the takeover, thus they are able to achieve higher growth," Cazenove's Ye noted.
In the big picture, it will help China's industry to improve its global competitiveness and management expertise, with the side effect of saving resources.
For example, Huaxiang Group announced it will invest 500 million yuan to gain a stake in Fawer Automotive Parts Co Ltd. This will boost its business with China's second-largest auto maker FAW Group.
Shanghai Automobile Gear Works, a subsidiary of China's largest auto maker SAIC, also signed an agreement with Brilliance Auto to collaborate on the development of core spare parts and transmissions at the beginning of this year. Annual production capacity is designed at 500,000 units.
Henan Province-based Aeolus Tyre Co Ltd just completed its purchase of a powertrain maker with 81.79 million yuan. And it also plans to take over another smaller tire maker in Henan.
"We like companies with scale, technology, alliance or cooperation with foreign auto makers and suppliers," Ye commented.
As rising commodity prices spread across the world, the consolidation will also give Chinese companies the chance to step up overseas mergers and acquisitions.
And the appreciation of the yuan will make it cheaper for them to buy overseas, especially in the United States.
Domestic makers see technology and engineering capability as their top priority in overseas integration, in addition to overseas distribution and clients.
Following Wanxiang Group's attempt to buy struggling US company Delphi, Ningbo-based Huaxiang Group bought UK luxury interior supplier Lawrence Automotive Interiors for 3.4 million pounds, or about 51.95 million yuan.
