China's emerging rich are a welcome sight for global luxury automakers. Jin Ming of China Auto News takes a look at the state of play in the Chinese market for luxury autos.

Competition in China’s luxury auto market was already intensifying as Stuttgart-based Porsche prepared to launch its new Shanghai showroom earlier this month. The Shanghai Porsche Center, which was being relocated from Huaihai Road to Nanjing Road West near People’s Square in the center of the city, is across the road from the showrooms of Ferrari and Mercedes-Benz.

The three luxury automakers are targeting China’s new rich, which have emerged as a by-product of GDP growing at more than 10% a year over recent years. A recent HSBC survey found that China’s middle class, which it defined as people aged 20 to 50 with an annual disposable income between US$8,133 (RMB60,000) and US$27,111 (RMB200,000), will grow from 35 million last year to reach 100 million by 2016.

A survey by the National Development and Reform Commission found that at least 300,000 people in mainland China have more than US$1 million in cash, most of whom live in Shanghai and Beijing. According to the latest China rich list, more than 500 people in China have more than US$108.45 million (RMB800 million) worth of assets.

The world’s luxury automakers have been unable to resist the lure of the Chinese economy’s stunning growth. As such, the local luxury auto market has become an indispensable part of the international market, and a key engine of growth for most automakers. Germany’s Porsche, Italian Fiat’s Ferrari and England’s Bentley and Rolls-Royce have all increased sales dramatically in China over the past few years.

Porsche, which boasts 18 dealerships across the country, expected to sell 4,000 vehicles in mainland China this year. It sold 2,305 vehicles last year. Ferrari is planning to sell 160 cars in mainland China this year, a 33% increase year-on-year. Bentley, now a brand under Germany's Volkswagen, has received 400 orders in mainland China this year.

New market entrants, such as England’s Aston Martin, Italy’s Lamborghini and Holland’s Spyker, are displaying their wares at auto shows in Shanghai, Beijing, Guangzhou and Chengdu, hoping to gain exposure to affluent Chinese consumers. Aston Martin, which has just launched its first showroom in Shanghai, hopes to sell 150 cars in mainland China next year.

China’s luxury auto market was worth US$2 billion last year. It is projected to grow 20% this year and next before leveling out at 10% annual growth over the following five years. Luxury auto sales are forecast to be worth more than US$11.5 billion by 2015.

To feed the universal human nature of curiosity and capture this rich cash cow, a rich product line is necessary. Rolls-Royce has just launched its two-door, four-seat convertible Phantom Drophead Coupe in China, carrying a price tag of US$840,450 (RMB6.2 million). Porsche’s products include the Boxster, Cayman and Cayenne.

Moving beyond the first-tier cities is another important strategy for most automakers. Total sales revenues from Chinese cities other than Shanghai and Beijing are expected to exceed revenues for the two key cities combined. However, the sheer land area involved means targeting these widely spread consumers is easier said than done.

Foreign automakers are also entering a nascent luxury auto market in China. The majority of customers know little about the top brands; while they may be able to recall brand names, they know little about the characteristics unique to each.

Eyeing the long-term benefits, Porsche has organized events in Shanghai and Beijing to teach potential customers how to drive sports cars. Meanwhile, Ferrari has developed a Chinese version of its website to offer potential buyers easier access to information.

According to the China Association of Automobile Manufacturers, sedan sales in China grew 24.32% year-on-year in the first 11 months of this year to a record 4.2407 million. The top ten models, which include VW’s Santana, GM’s Excelle, Toyota’s Camry, Ford’s Focus and Honda’s Accord, sold a combined 1.3756 million vehicles, accounting for 32% of total sedan sales. Chinese-branded cars accounted for 27% of total sedan sales, and the top ten Chinese brands accounted for 73% of those. The top ten sedan manufacturers – FAW-VW, Shanghai VW, Shanghai GM, Chery, FAW-Toyota, Dongfeng Nissan, Guangzhou Honda, Geely, Chang’an Ford and Dongfeng Peugeot Citroen – sold 2.7606 million vehicles, accounting for 65% of total sedan sales.

This article appeared in Chinese in China Auto News on December 14, 2007. The China Perspective takes no responsibility for the accuracy of the original article.