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UPDATED: April 23, 2012 NO. 17 APRIL 26, 2012
Joining the Yacht Club
Chinese SOEs make forays into the luxury brand market but may be all too eager to scoop up big names in foreign markets
By Lan Xinzhen

ON A BOAT: Prospective buyers look at a yacht at the First China Marine Economy Investment Fair in Ningbo, east China's Zhejiang Province, on November 11, 2011 (ZHANG HEPING)

Italian luxury yacht-maker Ferretti Group, a world leader in the design, construction and sale of luxury watercraft, is lost in choppy waters. Since 2009, the yacht industry has been in decline with orders and price tags shrinking as demand dwindles. Financial difficulties have also hampered Ferretti's business operations, making the company run into heavy indebt, and, as most European banks are mired in troubles of their own, they are unable to lend support to keep the renowned yacht brand afloat.

SHIG-Weichai Group, a manufacturer of heavy-duty vehicles and other auto components in east China's Shandong Province, saw the chance to buy Ferretti. The acquisition is already under final assessment, marking the first time that a Chinese state-owned enterprise (SOE) become the owner of a luxury product brand.

Weichai signed a strategic restructuring agreement with Ferretti in Jinan, capital of Shandong, in January. Under the agreement, Weichai will pay 178 million euros ($136.9 million) for the stake and the Industrial and Commercial Bank of China will pitch in another 196 million euros ($150.8 million) in loans to Ferretti. With a total investment of 374 million euros ($287.7 million), Weichai will have a 75-percent stake in the Italian company.

Founded in 1946, Weichai now has more than 40,000 employees worldwide, with total sales revenue in 2010 standing at 91.1 billion yuan ($14.47 billion). After the deal, Weichai Group will begin its strategic adjustment. By fully optimizing Ferretti's resources in the yacht sector, Weichai aims at being a supplier for world leading luxury yachts.

The Ferretti deal demonstrates China's growing interest in luxury consumer goods and hi-tech products. Since 2010, Chinese enterprises have also looked to Europe to expand, with a direct investment in the continent reaching $5.96 billion in 2010, up 101 percent year on year.

Juicy outlook

Although outsiders have doubts on whether Ferretti can regain its fading glory by utilizing the emerging market in China, Weichai's Board Chairman Tan Xuguang remains positive on the foray into the luxury yacht sector. Tan said his company has set the yacht-making industry as a strategically important target for the next five years.

By the end of 2010, China had registered 1,500 yachts and 8,500 yacht berths, including those in construction and those already put into use, said Liu Cheng, a professor at the University of Science and Technology Beijing.

Yachts are mainly marketed to higher income groups due to their hefty price tags. Currently, there are about 10 million Chinese residents who may become potential buyers of luxury yachts. So China will become not only the largest manufacturer but also the largest consumer of yachts, said Liu.

Weichai's first goal after the deal is to turn Ferretti from debt into profit by fully exploring the emerging market in China. Ferretti agreed to set up a new factory in China and design a series of luxury yachts especially for Chinese consumers, said Tan.

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