General Motors Co's aim of becoming a significant player in China's luxury car market has received a boost as Chinese authorities approved the US automaker's plan to build a $1.3 billion Cadillac plant near Shanghai.

The approval, announced on Tuesday, is an important part of the Detroit-based automaker's effort to grab a bigger share of the luxury market in China by aiming its premium Cadillac sedans at wealthy buyers who see upscale vehicles as signifying success but tend to favor German brands BMW, Audi and Mercedes-Benz.

The plant, which will have capacity of up to 150,000 vehicles, will be located in Shanghai's Jinqiao zone, where GM's joint venture Shanghai GM and GM China headquarters are located, with construction beginning in June, GM spokeswoman Dayna Hart was quoted as saying by the Wall Street Journal. The National Development and Reform Commission had recently signed off on the plant but didn't specify a date, Hart was quoted as saying.

China's sales have grown in importance for GM at a time of difficulties in its European operations and modest results in its core North American market. In GM's recent first-quarter earnings report, record sales of luxury vehicles in China were a bright spot, as the company posted a 14 percent drop in profit, partly on weaker North American earnings. But it was the US company's 13th straight quarterly profit since emerging from a government-led bankruptcy restructuring in 2009.

Analyst David Sedgwick told China Daily that China's 25 percent import tariff prevents GM from generating high sales volume unless the company makes its vehicles in the country. "Audi, Mercedes and BMW all produce key vehicles locally," the former editor of Automotive News said. "If GM wants to be a player in this market, they have to do likewise." Although vehicle sales in China have cooled somewhat recently, "China is seen by virtually every automaker as the big growth market for the luxury segment," Sedgwick said. He noted that a number of luxury automakers are opening dealerships in western China, which is seen as one of China's fastest growing regions. BMW has a dealership there in Urumqi, he said.

"In general, luxury automakers are opening dealerships in Tier 3, 4 and 5 cities, which are not yet blanketed by dealerships. For luxury brands, China is still a growth market," Sedgwick said.

A recent report by global management consulting firm McKinsey & Co said China was on track to become the world's second-biggest market for luxury cars - defined as priced above $50,000 - by 2016 and the market leader by 2020.

Sedgwick said that while it seems likely that Cadillac can significantly grow its market share, "it isn't clear yet whether the US brand can mount a serious challenge to Mercedes, BMW or Audi". He pointed out that Cadillac faces a similar challenge throughout the world. "In China, it might have somewhat better chances than elsewhere because Buick has established a reputation as a quality brand," Sedgwick said. "We'll see how Cadillac does."

GM aims to triple Cadillac sales in China to 100,000 by 2015, as stated by brand president Bob Ferguson early this year. GM put its XTS Cadillac sedan on sale in February, and more than 2,000 of the cars sold in March, despite the $56,000 price.

Production of the XTS sedan at a Shanghai plant began in February and the new plant also will make the car, the company said. GM plans to start making its smaller, entry-level Cadillac ATS in China later this year. With more than 200 dealerships in China, Cadillac is on pace to sell 45,000 to 50,000 cars in China this year, compared with over 187,000 US sales, GM has said.

The new plant is part of GM's plan to invest at least $11 billion in China between 2013 and 2016. Chairman and CEO Daniel Akerson told analysts following last week's earnings release that capacity in China will grow 20 percent this year from a year ago.

michaelbarris@chinadailyusa.com