"We've decided that the luxury market is going to grow and we want a bigger share," said Dayna Hart, spokeswoman for GM in China.
The move comes at a time when many of the leading premium brands, including Daimler AG's (DAI.XE) Mercedes Benz and BMW AG (BMW.XE) are looking at single-digit growth this year as sales growth in the premium market slows. In 2012, BMW saw China sales grow around 40%.
GM first announced in April 2012 its plans to build at least one factory for Cadillacs in China. Ms. Hart said the National Development and Reform Commission had approved the plant recently, but did not specify a date.
The facility will have a capacity of 150,000 vehicles. Construction is scheduled to begin in June. The facility will be built in Jinqiao, Shanghai, where GM's joint venture Shanghai GM and GM China headquarters are located.
The plant will initially produce the luxury Cadillac XTS sedan, which was launched in the market in March this year. GM also has introduced refreshed editions of the luxury SUV SRX, Cadillac's best-selling model in China.
GM has announced it will bring Cadillac's global portfolio to China by adding one model per year through 2016.
Last year, Cadillac sold just 30,000 vehicles in China. GM said in January it aimed to increase Cadillac sales to 100,000 by 2016. GM has said its longer-term goal is to take Cadillac's share of the luxury car market to 10% by 2020.
"Cadillac remains a tiny player in the premium space in China and faces an uphill battle competing directly with the German three luxury players," said Janet Lewis, analyst with Macquarie Securities.
For every Cadillac sold in China, BMW AG sells roughly six of its cars and Audi AG (NSU.XE) nine, she said.
Car sales in China rose 7.1% in 2012 to 15.5 million vehicles, according to the semiofficial China Association of Automobile Manufacturers. The premium car market accounts for 9% of all passenger-car sales, according to consultancy McKinsey & Co., compared with 4% in Japan and 6% in South Korea.
McKinsey expects 12% annual growth through 2020, outperforming forecast 8% growth in the broader car market.
The consultancy expects China's premium car market to reach three million units by 2020 and says the country could become the world's largest premium car market as early as 2016, ahead of the U.S. and Germany.
"The potential of premium segment is still big with many consumers upgrading their first car. If the product is good then the risk can be quite low," said Yale Zhang, managing director of Automotive Foresight (Shanghai) Co., an automotive consulting firm in China. "Cadillac will gain market share in the foreseeable future."
GM's Ms. Hart did not comment directly on recent moves by the Chinese government to encourage officials to deploy domestic brands in their fleets, but noted other segments of the market promised growth.
"There are a lot of young and affluent buyers out there interested in buying luxury cars," Ms. Hart said.
Macquarie's Ms. Lewis said that to win over such consumers, GM would have to convince them that American brands can be luxury brands. "I think for now Chinese consumers associate "old-world, European" with luxury, rather than "new world, American,'" she said.
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