Vehicle sales in China rose 8.1 percent in the first half of the year, the automakers association said, well ahead of full-year predictions with the industry cautiously optimistic that positive sales momentum will continue. 

 

Vehicle sales growth in the world's largest auto market stalled last year as the economy slowed before rebounding strongly in October supported by a tax cut on vehicles with small engines. 

 

Many industry watchers questioned whether the rebound could be sustained, but analysts say sales so far this year have met or exceeded expectations. 

 

"People are cautiously optimistic," said Godfrey Tsang, a consultant and former vice president for Lexus China. 

 

Sales grew 15 percent in June, the China Association of Automobile Manufacturers told reporters on Monday, the highest monthly growth since last December. 

 

Reflecting the strong start to the year, LMC Automotive last month raised its prediction for annual growth by 0.4 percentage points to 8 percent in passenger vehicle sales for 2016. 

 

But pressure remains high on dealers. According to the China Automobile Dealers Association, dealership vehicle inventories are at their highest level since November. 

 

With fierce competition among dealers, average discounts have been up to 3 percentage points higher in the first six months compared with the same period in 2015, according to Chinese consultancy WAYS. 

 

Analysts said the main uncertainty hanging over the market is whether the government will allow its tax cut on small cars to expire. 

 

If the tax expires as expected on Dec. 31, consumers may rush to buy cars this year to cash in on the incentive, at the expense of next year's sales. On the other hand, an extension of the tax cut would push down fourth-quarter sales. 

 

Last month, the dealers' association said it favored making the tax cut permanent to promote fuel-efficient cars. Association spokesman Chen Shihua said the tax cut likely would be extended if sales do not meet targets in the second half. 

 

"Car sales would be volatile without the tax cut," Chen said. "Looking at H1, cars with small engines have been the main driver of sales. If the government suspends this incentive, sales might drop a lot."

 

The association reaffirmed its forecast that overall vehicle sales will grow 6 percent this year. 

 

But with China's real estate market rebounding, the government will be less likely to turn to car sales incentives to sustain economic growth, said James Chao, Asia-Pacific chief for IHS Automotive. 

 

Presuming the tax cut expires, IHS predicts sales growth will fall to 1.4 percent next year.