China's Next Port of Call: Luxury Yachts

Caprice Lam took 90 minutes to close his first luxury-yacht sale. That's all the time it took for the customer to step aboard his company's 62-foot, 13 million yuan ($2 million) vessel on China's tropical Hainan Island and order his bank to wire a 35 percent deposit. "I don't even have his card," says Lam, a salesman at Xiamen Hansheng Yacht Building of Fujian province. "He just gave me his cell phone number, called his bank, and paid the deposit."

China's economic growth has resulted in flush times for the country's emerging yacht industry. A half dozen or so Chinese yacht builders are now competing bow to bow against established Western builders like Azimut Yachts, Ferretti Yachts, Princess Yachts International, and Brunswick (BC) for wealthy consumers on the mainland. "This is a sign of China's own industrial confidence," says Ryan Swift, editor-in-chief of Asia-Pacific Boating magazine.

While the number of millionaires in China is estimated at more than 447,000, there are only about 100 Chinese-owned yachts longer than 60 feet, according to Rupert Hoogewerf, who compiles the Hurun Report, which tracks China's wealthy. In the U.S., there were more than 7,000 that size in 2006.

In Zhuhai, Sunbird Yacht is building two vessels for export to a Milan-based shipyard in July. Sunbird's staff of 400 workers is capable of producing only about 20 boats per year, making it a small fry by industry standards. Large-yacht building is new to China and workers lack the skills and experience of their Western counterparts, says Filippo Bertoni, an Italian naval architect from Perugia, Italy, who designed the boats that Sunbird is exporting. "That first boat was like a school boat for them," says 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."

What Sunbird's workers lack in speed, they make up in affordability. Sunbird pays unskilled workers at least 2,000 yuan ($306) per month, rising to three times that for electricians and carpenters, says Charles Luo, vice-president for international business. Although that's more than double the average wage in Guangdong province, it still allows the company to build boats for about 30 percent less than foreign rivals. Another edge for mainland yacht companies: Beijing slaps a 43 percent duty on imported boats.

The largest Chinese-built yacht is a 144-foot steel-and-aluminum-hull vessel still under construction at Kingship Marine's shipyard in Zhongshan, Guangdong province, that carries a price tag of nearly $27 million, says Diana Liang, director at Kingship.

Luxury-yacht builders outfit boats differently for the Chinese market. One reason: Owners need special permits to travel on their yachts between provinces and are restricted to China's coastal waters. For many local buyers, that means it's out with big sun decks and water-sports add-ons popular in the U.S., and in with mahjong salons, karaoke machines, and large galleys. "Europeans go on [a] cruise for 10 days or 2 weeks," says Gordon Hui, managing director of Sunseeker Asia, which sells the Poole (U.K.)-built boats. "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."

To up their game, China's yacht manufacturers are hiring foreign designers or simply acquiring overseas rivals. Hansheng works with U.K.-based design expert Bill Dixon, and some of Sunbird's boats have been crafted by Seattle-based designer Brian Holland. Qingdao Nauticstar Marine paid $20.2 million to buy Italian yacht builder Cantieri Navali di Lavagna last year. "The purpose of the acquisition was to help us tap the global market," says Hou Jie, Nauticstar's general manager. Nauticstar built its first boat in 2003; today it produces craft ranging from a 6.5-foot rubber dinghy costing $3,078 to a 40-foot catamaran complete with four queen-size beds costing $2.1 million. Sales this year should top $154 million, says Hou.

Hudson Yacht & Marine, part of a Xiamen-based group of companies that builds everything from Louisville Slugger baseball bats to medical mattresses, in 2005 began making inflatable craft. Today it builds boats up to 75 feet long for brands including Britain's Pearl Motor Yachts. One customer—Newport, R.I.-based Gunboat—has sold three 60-foot sailing yachts made by Hudson to buyers in Germany, the U.S., and Taiwan. Gunboat's founder, Peter Johnstone, says there's still an anti-"made-in-China" bias to overcome. "There will be naysayers," he says, "however ... the quality and detail is on par with any of the top yards in the world."

The bottom line: Domestic-built yachts are luring China's newly wealthy, thanks to lower costs and high import tariffs.

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