GM Doubles Down in China

If you've ever been on the streets in a Chinese city, you may wonder if there's room for a single car, let alone another few million, but the Chinese don't seem to sweat the logistics. Chinese car consumption has been growing north of 40% per year for the past few years, and it shows no signs of slowing down. How far have things gone? Shanghai recently put huge increases on fines for cyclists and banned bikes altogether on many city roads -- a move that, in America, would be akin to limiting baseball and apple pie to two days a week.

General Motors (NYSE: GM) announced today that it will invest $3 billion in China to take advantage of the Chinese car craze by doubling its manufacturing capacity there. GM currently produces everything from domestic mini-models to Buick Sedans, Chevy Blazers, and minivans. In a vote of confidence for Chinese manufacturers, GM will also assemble several models from the flagship Cadillac line in its Chinese plants.

The move strengthens GM's position among the other big players that build cars in China -- either in their own plants or through partnerships with domestic manufacturers. Among the other notable carmakers that have turned to China for production are Ford (NYSE: F), Honda (NYSE: HMC), Toyota (NYSE: TM), DaimlerChrysler (NYSE: DCX), and Nissan (Nasdaq: NSANY).

GM's move is not surprising, given recent news that China is set to become its second-largest market this year. But with less than 10% market share, GM would have to do a lot more to topple Far East veteran Volkswagen, which has operated in China since the mid-1980s. Volkswagen commands nearly 40% of the car market, and last year it committed another $7.5 billion investment in its Chinese operations.

But with industry watchers expecting China to become one of, if not the, world's largest car consumer within two decades, even a small portion of the pie could add up to giant gains for the top line. Whether that translates into profits is, as always, another question.

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Fool contributor Seth Jayson took the scariest cab ride of his entire life in Guangzhou. He owns no company mentioned. View his Fool profile here.