Modularization (MD) in the auto industry is relatively new when compared to its use in other industrial areas. It is regarded as the third revolution in the history of the auto industry after Henry Ford's assembly line production system and Toyota's JIT (just in time) management. Modularization brought a major reorganization to the automotive parts supplier industry by realizing the firm's strategic positional advantage through mass customization While academic interest in this area also experienced significant growth in recent years, few empirical studies have been conducted because it is a difficult task to operationalize the multi-faceted, complex modularization. Although modularization has become a global trend in the auto industry, studies show that different characteristics of modularization are exhibited in various international automobile markets. China has been recognized as the largest car market and manufacturer in the world in recent times, yet the industrial structure is quite different from leading countries such as the U.S. and Japan. More than sixty percent of the vehicles in China are produced under foreign brands by joint venture factories. Despite the importance and uniqueness of the Chinese auto market, only a few conceptual scholarly works have been conducted touching on the concept of modularization. This means that there is not a deep understanding of this topic as it exists in the Chinese auto market. To emphasize, no literature was found among the existing works about the cultural impact on modularization and its outcomes in China. The purpose of this study is to fill in such a gap with an empirical analysis on the impact of modularization on the auto industry in China. Guanxi as a unique cultural phenomenon in China is covered in this study. Internalization theory, transaction cost economics, the knowledge based view of the firm, and the OLI model is reviewed as a base for the study. In practice, this study will help managers in the auto industry make a more scientific decision of whether and how they should go into modularization, especially in the Chinese market. It is also helpful for automakers like GM and Ford who have an ambitious parts procurement plan from China to have a better understanding of the Chinese auto industry.