After last year's breakneck growth in sales, consumers are holding back as the world's third-largest economy slows down and massive government stimulus measures including car-buying incentives are scaled back, they say.

But foreign automakers faced with weak global sales are still confident in the Chinese market, with some boosting production capacity as they bank on increased long term demand from the nation's expanding middle class.

"The China market is huge. Even after the explosive growth last year, there is still significant potential in second and third-tier cities," said Jenny Gu, a Shanghai-based analyst at auto industry consultants J.D. Power and Associates.

Auto sales totalled 9.02 million units in the first half, up 48 percent from a year ago, according to the China Association of Automobile Manufacturers.

Sales have slowed since the start of the year, from a 124 percent on-year increase in January to just a 17.2 percent jump in July, but 2010 sales are still forecast to top 15 million units -- about a 20 percent on-year increase.

"The Chinese are the only ones in good shape," Scott Laprise, a Beijing-based analyst at CLSA, told AFP.

"There are still good numbers despite the government not trying to encourage car sales. That means you've got very good, fundamentally strong demand."

Chinese automaker BYD Co. -- backed by US billionaire Warren Buffett -- nevertheless cut its 2010 sales target by 25 percent to 600,000 after achieving only 36 percent of its original target of 800,000 units in the first half.

US auto giant Ford -- which just sold struggling Swedish brand Volvo Cars to China's Geely Group -- in July posted a 6.3 percent drop in passenger car sales in China, but remains optimistic.

"The key reason for the drop... can be attributed to the market's return to more traditional sales patterns this year after an extraordinarily hot 2009 summer sales season," Ford said in a statement to AFP.

Sales took off in April last year on incentives offered by Beijing to boost the sector during the financial crisis, such as the halving of a sales tax on small vehicles to five percent.

China's auto sales for 2009 hit 13.64 million units, sending the nation past the United States as the world's top auto market.

Analysts cited the general slowdown in the Chinese economy -- growth tapered off to 10.3 percent in the second quarter, from a blistering 11.9 percent in the January-March period -- as a reason for weaker car sales.

"When the stock market and property prices are on decline, which often comes with a slowing economy, sales of automobiles, a typical discretionary consumer product, also slows," China International Capital Corp said in a research note.

Other analysts argued the weakening in demand is actually healthy as last year's stimulus measures may have created false hopes for the future.

"The tone of policies is not to boost the already-rapid growth," Gu said, adding authorities are now trying to promote the sale of "green" fuel-efficient cars.

China in June announced plans to offer subsidies of 3,000 yuan for purchases of cars that have 1.6 litre or smaller engines and consume 20 percent less fuel than current standards.

Despite the apparent market downturn, some of the world's top car makers are cruising forward.

General Motors, which has a greater presence in China than Ford, said its sales had grown 22.2 percent year-on-year in July, after selling more than 1.2 million units in the first half of 2010, up 48.5 percent from a year earlier.

Volkswagen, Europe's biggest automaker, said last month it was planning to build a new factory in eastern China to boost its production capacity in the country by 300,000 vehicles a year.

Honda Motor, which aims to boost annual production in China by nearly 30 percent to 830,000 vehicles by 2012, said Friday its July auto sales in China rose 12 percent from a year earlier to 56,688 units.

Japan's number two automaker has said a series of strikes at its Chinese plants have not affected its bottom line, despite increased labour costs as workers demanded higher salaries.

Analysts said the strategy of firms like Honda are focused on the long term, as China's wealthy urbanites opt to live further outside of city centres -- making cars a necessity.

"One day the Chinese people will say it's better to live far away from the city -- nicer air, more land, maybe a nicer house and cheaper price. The penalty, of course, is you have to drive," Laprise said.

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