Auto parts maker seeks government leniency over illegal Shanghai supplier

By Xie Jun and Chu Daye Source:Global Times Published: 2017/9/19 20:28:39

Senior executives from German car industry supplier Schaeffler talk to German Chancellor Angela Merkel at the International Motor Show IAA in Frankfurt, Germany, on Thursday. Photo: IC

An employee at a Shanghai-based metal products plant, a key supplier of Germany-based auto parts maker Schaeffler Group, told the Global Times on Tuesday that her plant has been operating illegally for years.

Her comments came after a petition allegedly from Schaeffler's Chinese branch to Shanghai government officials went viral.

The document surfaced in Chinese media reports on Monday. It stated that a recent shutdown by environmental law enforcement teams of the Shanghai Jielong metal wiredrawing plant in Shanghai had caused Schaeffler's Shanghai-based manufacturing unit to face a severe shortage of needle bearings, which are vital components of the German company's products.

The Chinese-run factory is the only supplier to the Schaeffler facility, so production of more than 200 car models might have to stop as early as Tuesday, the petition said, and that would affect as many as 49 vehicle producers including both foreign carmakers and domestic ones.

The employee at the Shanghai Jielong metal wiredrawing plant, which is located at the Pudong district in Shanghai, told the Global Times on condition of anonymity that the plant has totally suspended production because it lacks an Environmental Impact Assessment (EIA) report.

"Plants need to pass the EIA test to be legally allowed to manufacture products. So actually we have been manufacturing products illegally," she told the Global Times on Tuesday.

When asked why the plant did not conduct an EIA, she said that was a problem the company had never addressed.

"Nobody can solve it," she said, adding that nobody in her company followed up on the issue.

The Chinese government amended the law on EIA on September 1, 2016. The new regulations tightened punishment for violations of the law.

She also said that it would be hard now for the company to pass the EIA test as it is close to the Shanghai Disneyland Resort, and the local government does not want the area to be home to manufacturing plants that might cause pollution.

According to the employee, the plant was on a list of companies that should shut down immediately. The list was compiled during a recent central government inspection for environmental protection. She also noted that the company received the shutdown order on September 10.

"We can't worry about our clients because we have our own business to tend to. Now that the plant is closing, we have about 100 employees and we have not placed them properly," she said.

She also noted that the plant itself will bear the loss caused by the manufacturing shutdown.

A government official surnamed Du at the Pudong Environmental Protection and City Sanitation Administration Bureau told the Global Times on Tuesday that Schaeffler had visited the bureau to negotiate a solution, and the bureau will disclose the outcome publicly "at a later time."

In its letter, Schaeffler called on the Chinese government to grant it a three-month delay for the company so it could switch its supplier after the compulsory accreditation process. It said that otherwise, the supply disruption could mean losses of 300 billion yuan ($45.53 billion).

However, later on Monday, the company issued another notice on its Weibo account, saying that after talks with its clients, the Chinese government and suppliers, it had decided to draw on its global resources to make up for the supply vacuum caused by the shutdown of the Chinese factory and that the impact on automakers would be "manageable." 

Repeated phone calls to Zhang Yilin, CEO at Schaeffler's China branch, went unanswered on Tuesday. E-mail sent to Schaeffler's public relation department got no reply as of press time Tuesday.

Wu Shuocheng, a Shanghai-based independent analyst, said that the petition revealed loopholes in supply chain management and was negative for Schaeffler's brand.

"This is suboptimal management, for sure. Even if this supplier is as indispensable as Schaeffler claimed in the petition, as a world leading company Schaeffler should stockpile a reasonable amount of parts in advance, since it is dealing with a sole supplier," Wu told the Global Times on Tuesday, noting that the company should have a ready backup plan to switch its supplier. 

"However, it is up to the Chinese government to ensure manufacturers produce in compliance with China's environmental laws. It's unfair [for the Chinese public] to ask foreign companies to weigh in on the environmental practices of their suppliers," Wu said.

"Using downstream customers, potential downside industry impact, the annual output of the plant and employment as 'bargaining chips' to ask for special treatment by the government is weird," Wu said, noting that foreign companies shouldn't have such delusions.

A PR representative of SAIC General Motors Corp, which was named in the petition as being among the potentially affected customers, told the Global Times on Tuesday that the company has an adequate production preparation plan for the parts for Buick and Cadillac cars, so the issue wouldn't have any impact on the manufacturing of those models.

Continental Automotive Holding Co, which also appeared in Schaeffler's document, said in a statement e-mailed to the Global Times on Tuesday that the company is inspecting its supply and stockpile status to ensure daily operations go smoothly.

Commenting on the petition, European Chamber of Commerce in China President Mats Harborn told the Global Times at a press conference in Beijing on Tuesday that the environmental law is the very basis of business operation, and he urged "equal enforcement of law [for Chinese and foreign companies]."

This year, China has intensified its crackdown on industrial companies that violate environmental regulations and many plants and factories have been told to suspend production and rectify their practices.


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