A salesman stands in an empty BYD showroom in Beijing. After Beijing announced plans to restrict vehicle registrations in the capital from Jan 1, many automakers are looking at China's second- and third-tier cities. [China Daily]

Market potential

Automakers have struggled for years to keep up with soaring demand in China. Since the country joined the World Trade Organization in 2001, automobile sales have grown at an average rate of more than 20 percent year-on-year.

Fueled by the central government's stimulus measures, including tax reductions for small cars with engine capacities of 1.6 liters or less and subsidies to encourage farmers to trade in old, oil-guzzling vehicles, sales in 2009 surged 46 percent from the previous year to 13.6 million units during the global financial crisis.

That year, for the first time, China overtook the US as the world's largest automobile market.

The number of cars and light trucks sold in China was just one-tenth of that in the US in 2000. Yet, in 2010 domestic auto sales jumped 32.37 percent to 18.06 million units, the highest annual sales in the global automotive history, according to the China Association of Automobile Manufacturers.

The figure far outstripped the expected 11.5 million units of sales in the US, although arguably more impressive is the fact that, within two years, China nearly doubled total auto sales from 9.38 million.

However, the unexpected growth rate has caused problems for Chinese consumers, however.

"I never imagined buying a car was so difficult," said Yang Jing, 31, an events manager in Beijing. "I was told by different brands to wait several months to get a car or pay a lot of extra money to shorten the wait."

Consumers' enthusiasm for cars led to almost all automakers expanding production capacity, with some building brand new plants.

Analyst Jia Xinguang urged automakers to beware "risky expansions" this year, as he predicts the market will shrink after recent national and local policy changes.

Race for sales

To cool the fast-growing auto market, the Ministry of Finance last year announced that, from Jan 1, the central government would end its two-year tax incentives for small cars and subsidies to farmers.

"The policies have made us lower our expectations for this year's auto market from 10 to 15 percent year-on-year growth to no more than 8 percent," said Cui Dongshu, deputy secretary-general of the National Passenger Car Information Exchange Association. "The serious excessive consumption in 2010 may even lead to zero or negative growth this year."

The association's secretary-general, Rao Da, also said he believes China is facing negative growth for the first time in two decades, although "short-term negative growth is good for the industry restructure and mergers, which the government is calling for".

"The fierce competition will help improve the quality and technology, as well as the management and operation of the automakers," said Rao. "It should be a good opportunity for China to strengthen its industry."

Looking long term, analysts agree the country is still the automobile market with the most potential.

Official statistics show that average ownership nationwide is 52 units for every 1,000 people, no more than half of the world average of 128 units. With this in mind, experts expect the market to grow 10 to 15 percent annually in the next five to 10 years.

For Beijing dealerships, however, the news offers little comfort ahead of the coming Lunar New Year holidays.

"We all expected to get an extra bonus for the high profits our 4S store made last year," said a salesman called Ma at a showroom selling Volkswagen models. "Forget about the bonus, now we're hoping we can hold down our jobs."