Regulatory and market trends in China’s yachting sector

Shanghai - The 20th edition of the China International Boat Show, which is taking place now in Shanghai has opened with significant participation from Italian companies in the yachting sector both in qualitative and quantitative terms


di Giovanni Pisacane*

Shanghai - The 20th edition of the China International Boat Show, which is taking place now in Shanghai has opened with significant participation from Italian companies in the yachting sector both in qualitative and quantitative terms. The yachting market definitely still has great potential in East Asia and represents a significant opportunity for Italian companies in the future both in terms of exporting the excellence of the “Made in Italy” brand and in terms of more complex projects in the Chinese market through direct investments and joint ventures.

Beyond the numbers, the sector is developing an interesting business model which includes China’s involvement: mergers and acquisitions, technology transfer and construction know-how. Three cases are certainly noteworthy: the historic Ferretti shipyard is now 70% Chinese owned; the acquisition of the Brittish yacht manufacturer Sunseeker by Dalian Wanda Group; and Sundiro Holding Group Hainan’s partnership with Sanlorenzo SpA.

These are very significant cases that prove China’s desire to participate actively in the global yachting sector. Clearly the sector still has serious problems, some of which it shares with similar sectors and some which are peculiar to yachting. First of all is the significant wealth of technologies, research and development, know-how and industrial property rights (brands and patents) which often belong to companies in the sector that fear, rightly or wrongly, that they will be copied by Chinese companies.

This first obstacle can easily be overcome with a careful strategy that would appropriately protect the companies. For example, the necessary registration of brands and patents, with the preparation of distribution and agency contracts in advance in conformity with Chinese law, with the assumption of proper guarantees for the more delicate contracts for technology transfer or design and development of materials and components. For example, the new regulatory approach for environmental protection pushes towards design, production and commercialisation of “green” engines and anti-pollution and energy-saving systems.

And no less significant are the critical problems linked to another prominent sector in yachting, which is design (for example Christian Grande’s design company is at the fair in Shanghai) which needs greater and more complex contractual protection. And there are external factors such as the regulation of navigation and sporting activities, the development policy for tourist ports and the related infrastructure (which is also a business that is growing strongly).

In recent years, in parallel with the development of the yachting market, policy has also moved to implement a strategy of infrastructure development, liberalisation and opening up of regulations. The recent decisions by China’s State Council both on sport yachting and on port infrastructure are moves in that direction. But policy has not only changed at the level of central government - local authorities are committed to sustaining the development of industry through designating suitable coastal areas and public quays that are more economical and appropriate for broad growth in the sector.

One further factor that causes foreign producers (and others) difficulties is the specific regulations that can make the entry of certain products into China particularly complex (for example, one thinks of the CCC [i.e. China Compulsory Certificate] regulations for electronic parts) or the approval processes for new ships, which are often long and complex. And finally, there is the issue of taxes and their impact on the sector. China’s Ministry of Finance recently opened a dialogue to create a more selective system of taxation that would not necessarily target all of yachting as a luxury sector.

This follows a trend for midmarket products, not only for super-luxury craft. China is moving towards change, with a stratified demand for pleasure boats. In short, Italian companies which have traditionally been engaged in the sector have to face a significant challenge in China to conquer one of the potentially largest markets in the world. In order to do this, they must find the right strategy to overcome market and regulatory obstacles.

*Lawyer, Managing Partner GWA - Greatway Advisory