People look at cars at a Buick dealership in Jilin City, Jilin province. Auto experts predict the biggest market potential comes from China's third- or fourth-tier cities. [Photo/China Daily]

McKinsey says China set to be major engine of industry's global growth

China's passenger vehicle market will maintain an average year-on-year growth of 8 percent over the next decade, due to increasing urbanization and a booming demand, especially, for sports utility and luxury vehicles.

The upbeat assessment of the country's auto industry came from McKinsey & Co, which said it expected annual new vehicle sales in China will be outpacing combined deliveries in the Europe and North America markets by 2020, reaching 22 million units a year.

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Though the market has slowed considerably from its 24 percent annual average growth between 2005 and 2010, McKinsey also predicted that the Chinese auto industry will become the major engine for the global industry, contributing 35 percent of growth between 2011 and 2020.

Arthur Wang, McKinsey partner for automotive industry, said: "That's why all the automakers are making China their most important market.

"That 8 percent growth forecast is based on our expectation of a 7 to 8 percent increase in China's GDP growth," he added.

Statistics from the China Association of Automobile Manufacturers showed this week that passenger vehicle sales increased by just 5.2 percent from a year earlier to 14.5 million units in 2011.

But Wang said the industry can expect a stronger performance in coming years, with the increasing income of Chinese consumers the key factor in driving sales over the next decade.

"The potential of vehicle consumption is clear. In 2011, only five out of every hundred Chinese owned a car. We hope the figure will increase to 9 by 2015 and 15 by 2020," said Wang.

He predicted that the biggest market potential comes from China's third- or fourth-tier cities, with the smaller cities consuming almost 60 percent of new cars by the end of this decade, up from 40 percent.

Liao Wenkan, McKinsey's associate partner, added that the strong momentum of China's automotive market will be driven especially by booming demand for SUV and luxury models.

"SUV sales will triple over the 10 years from 2011 as the fastest-growing segment in China, with consumers choosing bigger and more functional vehicles," he said.

He predicted that within a decade, SUV sales will account for as much as 22 percent of China's passenger vehicle market - a significant increase, although still well behind the 50 percent share enjoyed in the United States.

Both Wang and Liao agreed that sales of high-end luxury brand vehicles in general will sell faster than the low-end models.