Made in China - Soundings Online

Made in China

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Think your next boat will be built in Maine or Florida?

Here’s a look at the landscape some are betting will be home

to boatbuilding’s future

Think your next boat will be built in Maine or Florida?

Here’s a look at the landscape some are betting will be home

to boatbuilding’s future

Read the other story in this package: David Marlow: Setting the bar high for boatbuilding in China

Shanghai, “chuppies” — Chinese yuppies — live in luxury condominiums set among shops, restaurants and a world-class Formula 1 race track on which they can drive their Maseratis and Ferraris as fast as they want, and work out the stress from work.

With their appetite for Western luxuries, these affluent Chinese are among a new and growing wealthy and middle class of consumers who already number 100 million and are expected to double their numbers by 2010. The slumbering giant has awakened, creating enormous business opportunities now and for the future.

This hasn’t been lost on companies that sell boats and engines. “We see China as a market in 10 years — a significant market,” says Reid Graeber, director of international sales at Luhrs Marine Group, which comprises Luhrs, Silverton, Hunter and Mainship. “We want to get in now on the ground floor.”

In addition to Luhrs, U.S. boatbuilders Chris-Craft, Carver and Regal were at the 11th China International Boat Show in April in Shanghai. The Brunswick Boat Group was there, showing imported Sea Rays and Bayliners, and some of its locally made runabouts. Engine manufacturer Mercury was an exhibitor, along with controls supplier Glendinning Marine Products, generator manufacturer Kohler Co., Brunger Exports and Fraser Yachts Worldwide, which manages, brokers and oversees construction of megayachts.

Most Luhrs sales in China are through a Shanghai dealership, Bahrfuss International, which also represents Pershing, Ferretti, Mustang and Bavaria. Graeber says Luhrs has sold seven Silverton motoryachts and a half-dozen Hunter sailboats in China over the past two years — enough to justify being there, even though boating still is in its infancy.

The securities firm Goldman Sachs says China is now the world’s third-largest consumer of luxury goods, with 12 percent of the market in 2004. Bentley and Ferrari have dealerships in China, and Cadillac exhibited its latest models at the Shanghai show. The Gucci, Cartier and Louis Vuitton names are synonymous with success among China’s elite.

Goldman predicts China’s market for luxury goods will grow 25 percent annually for the next four years and by 2015 will be the world’s largest, surpassing Japan. By then, the Chinese could be consuming 29 percent of the world’s luxury products. The $64,000 question for U.S. boat and engine manufacturers is: Will they buy boats?

Business before pleasure

Except for dragon boat racing, pleasure boating remains a foreign concept in China. The Chinese have been racing dragon boats — 18-meter wooden rowing boats derived from an ancient fishing boat design — for 2,200 years. Still, boats — fishboats, junks, sampans — have been used mainly for work in China. For years the communist party viewed pleasure boats as reactionary extravagances.

“The Chinese don’t have a boating lifestyle,” says Howard Chan, a retired Chinese-American judge with long legal and commercial contacts in China. “They don’t have a tradition of boating.”

David Marlow, an American who has built yachts in China for a decade and elsewhere in Asia since 1974, agrees. “Though we in the industry may well envision an emerging vast market of neophyte boaters, it is for most Chinese either entirely outside their current radar screen or viewed with reluctance,” writes Marlow, chairman of Marlow Yachts Ltd., in an e-mail to Soundings.

Building boats in China, however, is another matter altogether. Marlow says China is building as many large yachts for export today as Taiwan, and probably will exceed Taiwan’s production this year. “Barring some sort of global catastrophe, [China] will continue to grow in stature as a yacht-building center,” he predicts.

The commerce department estimates that three years ago there were 260 boatbuilders in China. Today, Cheoy Lee is building a 95-foot motoryacht at a new factory in Doumen; Selene builds ocean trawlers from 36 to 72 feet at Jet-Tern Marine in Zhuhai; Australian company Halvorsen builds its Solo and Island Gypsy trawlers at several yards in China; Marlow builds passagemakers from 57 to 78 feet at a state-of-the-art facility in Xiamen (see accompanying story); and Seahorse builds trawlers at Zhuhai. The Raffles Shipyard in Yantai is building megayachts, among them a 289-foot Ian Mitchell proa, a 106-foot aluminum Sparkman & Stephens sailboat, and a luxurious 165-foot Frank Mulder-designed motoryacht.

“There is growing boatbuilding activity in China,” says John Glendinning, vice president of Shanghai show exhibitor Glendinning Marine Products of Conway, S.C. “A large part of the production is for export to the United States, Europe and Australia.”

But the domestic market for boats of any size in China remains tiny. Despite the extravagance of some of the country’s plutocrats, most Chinese remain frugal, Marlow says. They save 25 percent of their paychecks and place recreation well down on their must-do list. He says pleasure boating in China will grow, but he cannot foresee a “robust” recreational boat market developing there anytime soon.

“The concept of a yacht at this point is alien to them,” he says. “The first order of business for the Chinese seems to be just that: business. Pleasure comes in short bursts today and is for the most part defined by such simple pursuits as a foot massage or celebration with food and drink when significant success is met.”

Like the two-martini lunch years ago in this country, yachts are seen mainly as lubricants for transacting business. Wealthy Chinese normally wouldn’t buy a yacht just for leisure. They might buy one to promote waterfront condominiums or to entertain clients, but they would view Western-built yachts as poorly designed for the Chinese style of entertaining, Marlow says. They would prefer a yacht designed along the lines of a Las Vegas hotel, with lots of private suites set up for very short stays, gaming rooms, karaoke and other entertainment.

Olympic and Cup sailing

Yet China is endowed with 90,000 lakes, 6,500 islands and 8,000 kilometers of coastline, and some of the more adventurous of its 1.3 billion people are starting to explore boating as sport and recreation. For example, China has fielded an America’s Cup syndicate, a first for the country.

“The history of the America’s Cup is associated with stories of entrepreneurial spirit,” says Chaoyong Wang, the Chinese venture capitalist who launched the joint venture with Le Defi, a French sports management firm that fielded challenges in the last two Cups. Wang is reportedly spending $42 million to jump-start Team China.

Starting with two of Le Defi’s Cup boats, the French are managing the campaign and supplying most of the sailors, but they have integrated three Chinese onto the team and plan to bring more aboard. Wang wants to use Le Defi’s technical expertise along with homegrown talent to design a Cup yacht of his own and build it in a Chinese yard. He says the 2007 America’s Cup will be a training ground to build the team and turn it into a mainly Chinese effort for the following competition.

Adventurous Chinese also are finding the time now to sail across oceans. Sailor Wang Bin set off May 24 from Cannes, France, on the second half of a round-the-world voyage — the first for a Chinese pleasure-boat crew. Bin, an employee of Sina Corp., one of China’s leading online media companies, describes himself and his crew as “sailing enthusiasts,” but their voyage has a serious side. They are visiting 30 countries and carrying with them “The Five Friendlies” — cartoon-like mascots of the 2008 Beijing Olympics — to promote the games to the world.

The 2008 Olympic rowing, canoeing and kayaking venue will be outside Beijing, and the sailing venue will be in the resort city of Qingdao on the northeast coast. Qingdao is home to China’s national sailing school, which is immersing 80 students ages 15 to 18 in a three-year program of sailing and study. China’s stated goals, among others, in hosting the 2008 Olympics are to clean up the environment, make sport more accessible to its citizens, and raise their quality of life. One of the country’s slogans for the Games is Sports for All.

Steve Xie, an entrepreneur known as China’s “Ole Evinrude” after America’s pioneering outboard manufacturer, thinks the Olympics can only help foster both competitive sailing and leisure boating in China. Olympian Xiaodong Zhang won a silver medal, China’s first in sailing, in the women’s boardsailing event at the 1992 games in Barcelona, and boardsailor Jian Yin took home another silver from Athens in 2004. Xie is counting on the Chinese continuing down this road and promoting modern boating at home as they develop closer sports and cultural ties to the rest of the world.

“[The Olympics] will thrust boating as a recreational pursuit into prime-time viewing on every Chinese TV set,” predicts Dan Kubera, spokesman for boat and engine manufacturer Brunswick Corp., a pioneer of recreational boating in China.

The country is building a marina at Qingdao for Olympic sailing. The marina is replacing a shipyard, and after the games it will become a national and international sailing center and yacht club, hosting regattas and training Chinese sailors. The sailing center already is drawing visits from high-profile sailors. British sailing sensation Ellen MacArthur put in at the Olympic marina in April on her 75-foot trimaran, B&Q, during its record-breaking circuit of Asian ports, as the did the nine entries in the Clipper 2005-’06 Round the World Yacht Race. MacArthur met with China’s Olympic sailors, and the clipper fleet’s arrival was billed as the Olympic venue’s inaugural event.

While MacArthur signed autographs in Qingdao, down the coast in Shanghai the boat show drew 320 exhibitors and 21,000 attendees, both up more than 25 percent from 2005. European builders Ferretti, Azimut, Nautor’s Swan, Beneteau, Jeanneau, Mustang, Lurssen, Sunseeker and Princess exhibited, and show organizers reported “several million” dollars in sales, including a 42-foot Mustang, 35-foot Regal and 42-foot Jeanneau catamaran.

Powerboat racing also is coming to China this year. Superboat International/APBA Offshore, which organizes U.S. races, is sending five boats and teams to China in December for an exhibition in Guangzhou (Canton) near Hong Kong, says Superboat president John Carbonell. CC-TV, China’s government-owned television station, sent a camera crew to Louisiana’s Lake Pontchartrain three years ago to film the Superboat championships, and Chinese television has been replaying the action since, he says.

A delegation of 15 Chinese officials planned to attend Superboat races in Panama City, Fla., and Washington, N.C., this summer to see powerboat racing first-hand. Carbonell hopes the visit will help seal a deal to send 12 raceboats to China in 2007 for a seven-race series in coastal cities.

“This has just been mushrooming,” Carbonell says. He is waiting to see if this exposure to the glamour and excitement of high-performance racing woos any Chinese moguls into racing a boat themselves.

Barriers to growth

Judge Chan, the retired admiralty attorney and criminal court judge, has led marine industry trade missions to China and says Chinese pleasure boating is at a chicken-or-egg stage. Well-to-do Chinese have the money to buy boats and the leisure time to use them, but pleasure boats still are an unusual sight and few Chinese have been out on one.

“They have to learn how to enjoy the water,” he says.

Bill Kimley, owner of Seahorse Yachts, which builds trawlers and motorsailers in Zhuhai near Hong Kong, agrees. He says lack of uniform safety and licensing regulations, offices where skippers can apply for a license, and boating infrastructure — marinas, repair yards, service centers, boating laws, waterway management, search and rescue, seamanship schools — remain barriers to boating growth. Kimley says operator licensing is a mishmash. “Each region, sometimes each section of river, requires a separate license,” he says.

On some industrial rivers, the license required to operate a 39-foot Silverton is the same needed to run a 100-ton freighter, so yacht owners usually hire professionals to captain their boats, says Luhrs’ Graeber.

Marlow says a lack of repair yards keeps many from buying a yacht, and though the extreme shortage of marinas is a problem, “They could spring up overnight were there business to support them.” Shanghai boasts a few marinas, but most of coastal China — stretching from 40 degrees to 15 degrees north latitude — is devoid of them.

China’s local and regional governments and entrepreneurs are trying to address some of these issues, but those who pursue the Chinese market must be patient, says Pat Mackey, president of Brunswick’s Mercury Marine, which has been in China for nearly a decade now.

“A lot of Chinese people are becoming very wealthy in a very short period of time,” Mackey says. “They want to emulate the lifestyles of Europe and America. They want to buy good luxury automobiles and good luxury goods, including boats.”

Mercury is taking the long view of the market there and laying innovative groundwork now. About seven years ago it built a marina and yacht club — the Suzhou Taihu Mercury Club and Marina — on Lake Tai near Shanghai. Similar to a country club, it offers members dining, overnight accommodations, and facilities for bowling, playing pool and cards, reading and exercising. It rents boats and sells Bayliners, Boston Whalers, Sea Rays and Trackers, as well as rigid-hull inflatables, PWC, pontoon boats and Mercury-made engines.

“We wanted to establish this as our beachhead and do two things,” Mackey says. “We wanted to begin teaching the Chinese to boat and provide a recreation center for expatriates who live in the area.”

In a land where there is almost no boating infrastructure, the marina provides it all: boat and engine sales, service and repair, fuel, boat operation and maintenance classes, fishing and water skiing instruction, and weekend boat rentals with captain included as a teacher and driver. “[The rental fleet] is a good way of introducing people who have never been boating before,” Mackey says.

The club has 400 members now, including corporate members who wine and dine clients at the club and take them out on their boats to impress them. The marina has become Mercury’s main sales and promotional vehicle in China, though it also exhibits at both national and regional shows, says Kubera.

Working with local officials, Brunswick has developed prototype recreational boating safety and training classes. “Our marina recently was the first in China granted permission to provide license training and testing to both Chinese nationals and foreigners in conjunction with the local port authority,” says Kubera.

Luhrs relies heavily on “VIP functions” to sell boats, says Graeber. Its China dealer invites executives of a bank or real estate company to an elaborate dinner, and winds up the evening by taking them on a river cruise — often their first — on a Silverton or Hunter.

“It’s a different kind of marketing,” he says.

Fort Lauderdale, Fla., boatbuilder and yard owner Bob Roscioli tells of cruising down Shanghai’s Huangpu River on a big Pershing motoryacht with a local captain at the helm. Running at half speed, the yacht kicked up an enormous wake that washed over anchored barges and sampans, and left the captain’s American guests cringing. It was reminiscent of the wanton behavior of some big-boat skippers back home.

Graeber says the Chinese lean heavily toward power over sail because right now boat ownership among the elite is “all about image and flash and looking cool.” He says the Chinese generally shun sportfishing because fishing there is a blue-collar trade, not recreation.

Ninety percent of powerboats sold in China are smaller than 33 feet, says Mackey. But Chan sees growing demand for boats to 50 feet among high-rollers. Docks, marinas and repair facilities for larger boats just aren’t available, nor are crew to help operate them, says Chan.

Making it happen

A 2004 U.S. Commerce Department report says demand for weekend villas and high-end residences with waterfront views, as well as marinas, is encouraging developers to invest in residential docks and yacht clubs. Meanwhile, many of China’s coastal municipalities — Shanghai, in particular — are incorporating marinas into their city planning as future catalysts for high-end waterfront development.

“I was blown away by what they plan to do over the next 20 years,” says Roscioli. “They are taking whole cities and making them into Venices like Fort Lauderdale.”

Plans are under way to transform China’s waters from sewers and industrial highways into recreational resources for locals and tourists, which they hope to attract in large numbers. Roscioli attended the boat show in Shanghai, met with municipal officials, and toured a dozen yards that have partnered with foreign boatbuilders to produce boats for export.

“Shanghai is moving full speed ahead to make itself over into the boating capital of the world,” he says. But they are asking for help to make it happen. They need design, engineering and boating expertise to turn working waterfronts into upscale commercial, residential and yachting venues. A Shanghai delegation plans to visit the Fort Lauderdale International Boat Show in October to see how Americans put on a boat show and to tour the “Venice of America” to see how developers have created waterfront out of man-made canals and spoil islands.

Roscioli returned from China persuaded that the country is ready to embrace boating, both as a recreation and a business. Shanghai is making over its waterfront for the 2010 World Expo. The commerce department says the city plans to build marinas and a cruise ship port along its downtown Huangpu River waterfront to support the image of a modern Shanghai. Fuxing Island has been designated a future yachting center, and plans for Dianshan Lake, connecting Shanghai and Jiangsu provinces, include a yacht club and other recreational facilities.

The port of Jin Hui in the southern Shanghai suburb of Fengxian is supposed to become a 40-square-kilometer yachting industrial zone. Southeast of Shanghai, the Zhoushan islands — China’s largest island chain with 1,390 islands — is slated to become a yachting destination for tourists, cruisers and vacationers from Shanghai and elsewhere.

China also envisions the massive Three Gorges project 800 miles up the Yangtze River from Shanghai as a recreational attraction. However, Marlow notes that the boating season there is short, waterfront development is intense, and commercial vessel traffic is likely to become heavier since one purpose of the Three Gorges project is to open the way for more commercial traffic farther up the river.

Xie says Qingdao, Beijing, Guangzhou and Dalian have similar plans for yachting facilities. “They want to build marinas because this will promote the local economy and raise [waterfront] values,” he says. He expects that most marina development will be similar to Mercury’s, with developers building membership clubs for the well-to-do.

Shanghai and Rizhao already have elite clubs, but Luhrs’ Graeber says small, blue-collar clubs offering dinghies for rent also are springing up. Qingdao, for instance, has sailing, diving, kayaking and yacht clubs offering scuba, boardsailing, sailing and water ski instruction, and one of the resort town’s waterfront restaurants now rents PWC.

Graeber sees the Everyman clubs as a hopeful sign. “Anything that gets people into boating, even if it’s just a little sailboat or a little powerboat, that’s good,” he says. “It has to be more than just rich guys making an impulse buy to develop the boat market there.”

Slipping the lines

Cruising coastal China is hard to do right now, mainly because of the lack of fuel docks, repair yards and marinas. Chan says authorities envision resorts and marinas on many of China’s coastal islands.

“As far as natural beauty, many areas rival the very best in the world,” says Marlow. “From the tropical climes of Hainan Island to Ningbo in the north, the coastline is varied.” China’s southernmost coast resembles the Caribbean, he says, while northern stretches are like the Gaspe Peninsula on Canada’s Atlantic coast. “In between are major rivers, mountainous and dune-like coasts. In the area of Fujian province … it is reminiscent of a Paul Gauguin painting,” he says.

Cruising that coast can be challenging, though. Undersea mountains rise from the deep off China to just a few meters below the surface, where they meet 3- to 7-knot currents and waves caroming back after pounding coastal bluffs in a “very disheveled sea,” Marlow says. Add to that swells building over the 6,500 miles of open sea separating China from North America, and skippers have their hands full.

Yet Hainan Island off southernmost China is a “beautiful place, like Hawaii,” Chan says. There are high expectations that China’s south coast, with its warm climate and resort-like atmosphere, one day will be a popular cruising ground. Charter company Sunsail, which just opened a base on Vietnam’s southeast coast, sees potential for charter fleets on the south coast of China and Hainan in particular, says Sunsail USA general manager Peter Cook. He says it could be a “beautiful” cruising ground, but like much of China the water quality there is poor because waterways too often serve as trash cans and sewers.

“There’s a lot of debris,” Cook says, but the government has set its sights on cleaning up pollution, both landside and on the water. “China is one we’re keeping an eye on. It’s going to have its challenges, but we’re definitely going to be there one day,” he says.

Marlow says crime is almost unheard of in China proper, but Chan notes that piracy is a serious problem in the South China Sea off Indochina and must be curtailed before cruisers will flock there.

Chan says pirates have fired on Chinese fishing boats with machine guns, boarded the boats and killed people. But that doesn’t dampen enthusiasm for China’s potential.

“I expect that a long time from now — maybe a long, long time — you will see [yacht carrier] Dock Express taking megayachts to China to cruise the China coast and enjoy the waters the way they do in the Caribbean now,” says Wes Dickman, an industry veteran who visited China recently.

Dickman, who brought Italian-built Ferretti yachts to the United States, believes China is on its way to becoming the world’s industrial powerhouse and sees “significant opportunities” for building yachts in China for export. “I was impressed with their [can-do] attitude, and I was beyond impressed with their work ethic,” he says.

Boat Tech China, which sponsors a marine trade exhibition in Canton, estimates that direct labor costs in China are 20 times lower than those in Europe and the United States. That means vast numbers of Chinese don’t earn enough to even come close to affording a boat, but it also means China has a huge skilled-labor force that can build boats for a lot less than European or U.S. builders.

Mercury has seen this and embraced it. A year ago last February it opened a wholly owned state-of-the-art plant in Suzhou that builds all of its 40-, 50- and 60-hp 4-strokes. Mackey says labor and locally manufactured parts and materials cost less, workers are well-educated, and the plant is more modern than Mercury’s U.S. factories. “The quality that I’m getting out of there in my engines is as good as the quality I get from anywhere else in the world,” he says.

Last year Brunswick also opened a boatbuilding plant on the Chinese mainland near Hong Kong to build aluminum boats and an 18-foot Sea Ray runabout for the Chinese and Asian markets. Those plants one day will produce for the Chinese market exclusively, says spokesman Kubera.

Mackey says Brunswick and Mercury are global companies operating in a global market. He sees their presence in China as a “real investment for the future” as consumption there and elsewhere in Asia grows.

Taiwanese yards, which have been building boats for the U.S. market for decades, are losing their price advantage because of rising labor costs and now are building boatyards in China to take advantage of cheaper and more plentiful labor there, Glendinning says.

Catching up

Many Chinese yards are playing catch-up with the United States in the quality of their fiberglass work, says Roscioli, but others are very competitive. The Marlow and Jet-Tern yards are ISO 9001 Quality Management System certified, which means they adhere to world-class quality control standards. And the Cheoy Lee and Marlow facilities use vacuum-bagging techniques for fiberglass layup.

Marlow notes that Hewlett Packard, Dell, General Electric, Kodak and other global companies are in China, producing high-quality goods in modern plants at “incredibly efficient rates.” He says his own Norsemen yard “trails no one in technology and modern techniques.”

Commercial shipyards are building 400-foot ferries capable of running 50 knots, and they build to Lloyd’s Register standards, Roscioli says. Many are itching to build megayachts. The quality of craftsmanship in woodworking and joinery is superb. “It’s all done by hand,” Roscioli says. “It’s mind-boggling.”

Yet Seahorse Yachts’ Kimley says doing business in China is far from a sure bet. Many Chinese yards have tried to segue from commercial shipbuilding to yacht building, often with disastrous results, he says. Yards inexperienced in yacht construction underbid jobs and can’t finish them, resulting in big losses for their foreign partners.

Judge Chan recommends any American doing business there have a respected and well-connected Chinese partner. This in-country representative with a financial stake in the company can help the foreign investor navigate China’s sometimes Byzantine bureaucracy, closely supervise local operations, protect against intellectual property theft, and — if the company is selling boats in China — promote the product in the right circles.

Kimley agrees. “An experienced and honest local consultant is a must, if you can find one,” he says.

China presents some difficult hurdles for the American who wants to sell or build boats or cruise there, but it also holds great promise.

“It’s not about the potential to sell a lot of boats there now,” says Graeber. It’s about laying groundwork for a market that could become the largest in the world, and helping develop the country’s vast potential as a place to build boats and cruise them.

“Nothing’s easy there,” says Bob Swindell, a vice president with the Broward Alliance, a South Florida business group that has organized marine trade missions to China. “But everything’s possible.”