China's auto industry growth may hit speed bumps

For the last decade, China's automobile industry has been developing rapidly. By the end of 2008, China has overtaken the US to become the largest automobile market in the world. Boosted by a recovering economy and a push to encourage small-car purchases, it looks likely to hold on to its pole position in 2009. Moreover, China has a vast consumer base with increasing disposable income and changing lifestyle, combined with a rapid development in road infrastructure, its reputation will continue to grow in the global automobile industry. The automobile production in China is expected to reach 16 million units by 2012.

However, there is a growing concern that a drop-off is expected in the near future. China's sales have been boosted by a halving of the purchase tax on smaller cars to 5%. This according to analysts pulls forward future demand and sales may collapse when the full tax is reinstated at the end of 2009. The industry also faces further challenges as effects of government policy wear off and environmental concerns grow. At this point, the outlook for growth in China's auto industry is still uncertain.