GM bets $1.3 bn on China Cadillac plant

US auto giant General Motors Co has won the Chinese approval to build a $1.3-billion automobile plant in Shanghai to produce its luxury brand Cadillac aiming to gain a strong footing in the premium segment in the world's largest car market.

Chinese regulator National Development and Reform Commission (NDRC) has given the green signal for the new plant to be constructed in Shanghai's Jinqiao zone with a production capacity of 150,000 vehicles a year.

The unit will come under Shanghai GM, a joint venture with Chinese automaker SAIC Motor.

Work on the new Cadillac plant is expected to begin as early as next month.

GM, the largest foreign carmaker in China, operates 12 joint ventures with Chinese partners, producing cars, commercial vehicles and light trucks. Last year it sold a record 2.84 million vehicles in the country.

According to global consulting firm McKinsey & Co, sales of luxury cars - cars those cost $32,000 and above - in China would see a 12 per cent annual growth through 2020 against the overall passenger car sales increase of 8 per cent.

The average growth rate of premium car sales was an impressive 36 per cent a year in the last decade, higher than overall growth of 26 per cent in the passenger vehicles market during the same period.

The luxury car market in China represents 9 per cent of all passenger car sales, compared with South Korea's 6 per cent and in Japan's 4 per cent.

Currently, the Chinese premium car market is dominated by German brands Audi, BMW and Mercedes-Benz, with around 75 per cent market share.

Sales of luxury cars in China, were 1.25 million vehicles last year, second only to the US, McKinsey said. It is projected that China may overtake the US in 2016 when the sales could reach 2.25 million cars and equal that of Western Europe in 2020 with sales of 3 million units.

Last year, GM sold a little over 30,000 Cadillacs in China compared with Audi's over 405,800, BMW's 327,300 and Mercedes' 196,200 vehicles.

The new Shanghai plant will initially produce Cadillac XTS sedan. GM plans to bring in one new model every year through 2016, keeping an annual sales target of 100,000 cars by 2015.

With the production of Cadillacs in China, GM will escape from the 25 per cent import tariff China imposes on American-made cars.

The company aims to achieve a long-term goal of 10-per cent market share in the Chinese luxury car market by 2020.

According to some analysts, GM is a laggard in the premium segment and will have to face stiff completion from the leaders as well as other European, Japanese and US brands.

However, some believe that Cadillac will gain market share in the foreseeable future as the potential for good luxury cars is still big as many consumers are upgrading their first car.