Detroit is still caught in its worst winter for decades. But in one corner of China's northern coastal province of Shandong it is already high summer.

 

Dongying Xinyi Auto Fittings Co. Ltd. -- China's largest maker and exporter of brake rotors, pads, plates, shoes and drums -- is building a factory complex on 530,000 square meters of old farmland outside the city of Dongying. Within five years, it wants to expand it into the largest center in the world for making auto friction products, with an annual capacity of 50 million sets of brake pads.

 

Company president Hu Zhichao sees foreign cost cutting in the midst of the global downturn as an opportunity to grab market share from competitors at home and abroad.

 

An ongoing 300 million rmb ($44 million) capacity upgrade should be complete in a few months. It will enable Xinyi to supply its top quality products in Detroit for a total landed cost (meaning cost including shipping and losses incurred in transit) of at least 40 percent lower than suppliers in Mexico, he reckons.

 

"Winter is good because it kills off the weak and leaves a clearer field for those with the strength to survive," says Hu. "We're ready to compete."

 

Hu has good reasons for believing Xinyi will see off both domestic and international rivals.

 

To sell products at home, Xinyi does not employ the expensive expatriate managers used by its three largest domestic competitors; TMD, Federal Mogul and Honeywell. Its quality is just as good, Hu reckons, while its political connections and knowledge of local conditions give it a home advantage.

 

For exporting, making Xinyi's products involves the labor-intensive processes of stamping, casting and machining. With benefit-inclusive wages for a machining worker of around $1.75 per hour (compared to $6 in Mexico and $35 in Michigan), Shandong has a big edge.

 

"India and Brazil may be just as cheap, but they don't have China's capacity because they don't have China's huge home market," Hu says.

 

Xinyi's new factory is just a five-hour truck ride from the deepwater port of Qingdao. Brake pads and rotors stack well. To ship a set of four pads to Detroit costs just four or five cents, Hu reckons.

 

As evidence that gains are already underway, he points to a 40 percent year-on-year increase in Xinyi's sales in the months of December to February; this in the face a contracting home car market and China's slumping exports of components.

 

Xinyi has been swamped with product enquiries and orders for test batches of product, Hu says. So much so, that for the Lunar New Year festival in January this year, the company was forced to cancel annual leave for its team of 150-odd engineers.

 

Volkswagen was one of several carmakers switching business to Xinyi. In December the German carmaker ended an agreement with TMD to buy brake pads for its locally made Santana sedan, leaving Xinyi as the sole supplier for the vehicle.

 

While individual aftermarket suppliers in the United States may have been reducing the size of their orders, Hu says, a greater number have started sourcing from Xinyi.

 

Then there are exports to the United States carmaker market, which Hu says amounted to some $4 million last year, or 7 percent of total sales.

 

Chrysler has put a temporary stop on orders to clear up excess inventory. But Ford is now finishing the testing process to use Xinyi's products for three more of its cars. These will add to the Ranger and Explorer SUVs, which have contained Xinyi rotors and pads since 2007.