Megayacht Demand in China Continues to Rise

Caprice Lam took 90 minutes to close his first luxury megayacht sale, from the time the customer stepped aboard the 62′ (19-meter) yacht on China’s Hainan Island to the moment the bank wired the 35% deposit.

“I don’t even have his name card,” said Lam, hours after the 13 million-yuan ($2 million) deal on April 2 at a boat show in the tropical resort of Sanya. “He just gave me his cell phone number, called his bank and paid the deposit.”

The yacht sale shows how China’s industrial base is breaking into the most expensive luxury markets. While wealthy Chinese typically entered markets for jewelry, clothes, cars and planes through U.S. and European brands, Lam works for Xiamen Hangsheng Yacht Building in Fujian province. It’s one of at least half-a-dozen Chinese yacht builders competing in the country’s nascent nautical market with Azimut Yachts, Ferretti Yachts, Princess Yachts International and Brunswick (Sea Ray Yachts).

“This is a sign of China’s own industrial confidence,” said Ryan Swift, Hong Kong-based editor-in-chief of Asia-Pacific Boating magazine. “A yacht is a very complex product requiring all the engineering of a house, which has to float, survive waves and have a fine finishing on the inside.”

This time, Chinese companies are entering a luxury market early. While China now has as many as 400 dollar billionaires, there are only about 100 Chinese-owned yachts larger than 60′, according to Rupert Hoogewerf, who compiles the Hurun Report of wealthy Chinese. In the U.S. there were more than 7,000 yachts that size in 2006.

In Zhuhai, two hours from Hong Kong by ferry and car, Sunbird Yachts is building 2 vessels it plans to ship to Italy in July. The buyer, a Milan boatyard, plans to unveil the craft at the Genoa boat show in October.

Sunbird’s boatyard is operating 7 days a week to meet the deadline. On a recent afternoon, about 20 Chinese laborers were working on the first of the 70′ yachts. Workers sanded the teak decks by hand and sealed tubes of electrical wires. Carpenters assembled the wooden, spiral staircase leading to the bridge from the deck below.

Sunbird’s staff of 400 workers is capable of making about 20 yachts per year. Large-yacht building is new to China, and workers lack skills and experience of their Western counterparts, said Filippo Bertoni, a naval architect from Perugia, Italy, who designed the export boats for Sunbird.

“That first boat was like a school boat for them,” said Bertoni, who expects the vessel will require 100,000 man hours to make in China, a task that would take an Italian crew 35,000 hours. “For the next boats, they will be faster.”

The yacht builders show how Chinese companies are moving into higher-value products as inflation and rising wages pare the country’s competitiveness for cheap manufactured goods and assembly plants.

Sunbird pays unskilled workers at least 2,000 yuan per month including overtime, rising to three times that for electricians and carpenters, according to Charles Luo, vice president of international business. While that’s more than double the average provincial wage, it still allows the company to build its boats for about 30% less than foreign competitors. With 43% duties on boats imported into China, “we have a huge advantage over foreign brands,” Luo said.

Still, some Chinese buyers are willing to pay a premium for a European yacht. Wang Da-fu, chairman of developer Shenzhen Visun Real Estate Group, bought a 72′ Pershing Yacht made by the Italian yacht-builder, Ferretti to entertain clients and help add cachet to his marina in Sanya.

“If I don’t buy a foreign boat, how can I ask others to?” said Wang, who is also a Ferretti Yachts dealer.

“There’s a lot of interest for boats bigger than 30 meters,” said Robert How, general manager of Princess Yachts Asia. “China is really, really coming on here.” Plymouth-based Princess, owned by LVMH Moet Hennessey Louis Vuitton SA, has sold 5 yachts since entering China in 2009.

Luxury yacht builders also have to tailor boats differently for the Chinese market. For many local customers, out with the big sun decks and water-sports facilities popular in the U.S., and in with mahjong salons, karaoke machines and large galleys.

“Europeans go on cruise for 10 days or 2 weeks,” said Gordon Hui, managing director of Sunseeker Asia. “The Chinese use the boat for a few hours per weekend to entertain clients, family and friends. They use boats no differently than they would a karaoke lounge in the city.”

Yacht owners need special permits to travel on their yachts from one province to another and are restricted to China’s coastal waters.

The largest Chinese-built boat so far is a 45-meter (144′), steel-and-aluminum hull vessel under construction at Hong Kong-based Kingship Marine shipyard in Zhongshan, Guangdong province, that carries a price tag of nearly 18 million euros ($27 million USD), about 1/3 less than it would cost if built outside China, said Diana Liang, director at Kingship.

That’s still dwarfed by some of the giants coming out of Germany. The world’s largest yacht is the 557′ Eclipse, built for Russian oil billionaire Roman Abramovich by Blohm + Voss Shipyards, a subsidiary of Hamburg-based ThyssenKrupp AG.

Oracle Corp. Chief Executive Officer Larry Ellison owns a 447′ boat built by Lürssen Bardenfleth in Bremen.

With a yachting culture less than a decade old in China, local manufacturers are tapping foreign expertise. Hansheng works with U.K.-based design expert Bill Dixon, and some of Sunbird’s boats are designed by Seattle-based Brian Holland. Qingdao Nauticstar Marine Co. Ltd. paid 13.8 million euros to buy Italian yacht builder Cantieri Navali di Lavagna last year.

“The purpose of the acquisition was to help us tap the global market,” said Hou Jie, Nauticstar’s general manager at the company’s shipyard in Jimo, a one-hour drive from Qingdao.

A tie-up signed in December with Clipper Ventures Plc to build 16 yachts, each 70′ long, for use in the 2011/12 Round-the-World Clipper race proves the quality of Nauticstar’s manufacturing, Hou said.

Hudson Wang, president of Xiamen Hudson Yacht & Marine, is another industrialist who has moved up the value chain. His Xiamen-based group of companies makes everything from Louisville Slugger baseball bats to medical mattresses to life jackets.

In 2005, he began making inflatable craft and now makes boats up to 75 feet long for brands including Pearl Motor Yachts Ltd. in Stratford-on-Avon, England. He plans to launch his own brand in two years.

One of Hudson’s customers, Newport, Rhode Island-based Gunboat, sells luxury, catamaran sailing yachts. Its founder, Peter Johnstone, said in an e-mail that there’s still a “made-in-China” bias to overcome in the international market.

He’s sold three 60′ yachts made by Hudson to buyers in Germany, the United States and Taiwan.

“There will be naysayers, however I’m very confident in what we will achieve,” he said. “The quality and detail is on par with any of the top yards in the world.”

Source: Bloomberg