China's car market is set to become the world's largest this year, with sales expected to reach 13 million by the end of December.

Car dealer showrooms around the country seem to be constantly crammed full of customers, encouraging automakers across the world to pour more energy into this market than they do into Japan's.

Though many economists predict the Chinese auto market will continue to grow in and after 2010, the current growth spurt has largely resulted from government tax incentives. Therefore, the future measures taken by the Chinese government from this point are sure to attract close attention.

A Hyundai Motor Co. dealership in a suburb of Beijing has been packed with visitors every weekend. Some of them get inside the South Korean automaker's display models while others sit at tables haggling with sales staff to get better deals. In contrast to the dimly lit interior of the dealership, the mood of the visitors and staff is one of crackling excitement.

One of the customers visiting the dealership was a 45-year-old architect from Beijing who came to look at an Elantra. The 1,600cc passenger car is this year's best-selling car in China.

The dealership's Elantras are priced at about 120,000 yuan (about 1.55 million yen), almost the same as his entire annual income.

"I can afford it. After seeing my relatives and friends buy cars, I've been inspired to buy one myself," the man said.

Between January and October, China's new car sales rocketed by 37.7 per cent from the same period last year to 10.89 million units. This figure alone surpasses sales for the whole of 2008.

In terms of annual sales, it is almost certain that China's auto market will be the world's largest this year for the first time, surpassing that of the United States.

Among the factors underlying the rapid growth of the car market are the rising income levels associated with the country's economic growth.

Average annual per capita income in urban areas jumped from 9,422 yuan (about 122,000 yen) in 2004 to 15,781 yuan (about 205,000 yen) in 2008. In rural areas, the figure rose from 2,936 yuan (about 38,000 yen) to 4,761 yuan (about 62,000 yen) during the same period. Both figures represent an increase of about 60 per cent.

Two government measures in effect until the end of the year have also been instrumental in boosting demand in the car market.

One of the measures halves a car purchase tax on cars with an engine size of less than 1,600cc. The other measure provides subsidies of up to 5,000 yuan (65,000 yen) to encourage people in rural areas to buy cars.

Sales of cars that fell under these measures leaped sharply this year, pushing up the country's overall new car sales.

Noriaki Yamada, chief operating officer of Mazda China Operations, predicts that China's car market will continue to grow in 2010.

"Demand is spurting up like spring water. The market may grow an additional 10 per cent to 15 per cent (in 2010 compared with this year)," Yamada said.

Other economists also forecast the market in 2010 will grow by about 10 per cent.

China's car diffusion rates are about 150 units per 1,000 people in urban areas, but only about 20 or so in rural areas, indicating huge growth potential.

But some Chinese media sources predict that new car sales will level out when the figure reaches the 13 million mark, because the effects of the government's assistance have been exaggerated and have eaten into future sales.

Many automobile companies have therefore called on the government to continue the same measures next year and the year after.

Domestic realignment eyed

The remarkable expansion of China's car market has been attracting many automakers. Currently, the number of car firms including foreign-affiliated companies is estimated at about 130.

Some of these car-making firms originally specialized in heavy machinery. One such example is Sichuan Tengzhong Heavy Industrial Machinery, which entered the industry by purchasing Hummer, a sport-utility vehicle brand, from General Motors Co. of the United States.

Among the burgeoning number of carmakers, foreign-affiliated companies have a market share of about 60 per cent.

In March, the Chinese government unveiled a policy to consolidate 14 major state-owned carmakers into less than 10 over a period of three years to help encourage the emergence of domestic automakers that can compete globally.

As a result of this policy, Chana Auto Co., a major Chinese automaker, announced November 10 it would absorb a midsize maker.

At the same time, the government has encouraged the development of electric vehicles and other cars using new energy sources, because it will not be easy for domestic carmakers to narrow the technological gaps that leave them trailing behind Japanese, US and European makers when it comes to gasoline-powered cars.

BYD Co., a Chinese firm that produces lithium batteries for cell phones and recently entered the car market, last year released a hybrid car that can be recharged using devices powered by household-use electricity.

The government aims to make new energy cars like this account for 10 per cent of the nation's entire car market by 2015. To this end, the government will provide assistance to domestic automakers and will help establish the necessary infrastructure for these vehicles.