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China auto market seen cruising to another strong year

New cars are seen at a parking lot of Changan Ford Mazda Automobile Co. Ltd, Ford Motor's joint venture in China, in Chongqing Municipality January 8, 2010. REUTERS/Stringer

By Samuel Shen and Norihiko Shirouzu SHANGHAI/DETROIT (Reuters) - The world's biggest auto market will likely sustain the momentum it regained in 2013, helped by an anticipated array of economic stimulus measures and robust demand for cars in smaller cities of China's interior regions, according to industry executives and analysts. The new year should mark a second year of double-digit growth for China after sales expansion rates slumped in 2011 and 2012 to 2.45 percent and 4.33 percent, respectively. In the previous 10 years, auto demand in China often surged 30 to 40 percent annually. Those hyper growth days are over, but last year the Chinese market rebounded convincingly. In 2013, sales in China rose 13.9 percent to 21.98 million vehicles, according to the China Association of Automobile Manufacturers (CAAM). "We believe clearly for anybody working in the automobile industry, if there's one place to be, it's China," Hubertus Troska, head of Daimler AG's Greater China operations that include Mercedes-Benz, told reporters in Beijing on Thursday, describing growth in 2013 as being quite strong. "If things continue well, there's a good chance that the automobile market in China will grow again double-digit this year," said Troska, who is also a member of Daimler's management board. The revived strength of China's auto market, which will be a popular topic of conversation at this week's Detroit auto show, is a relief to global automakers whose business is still impaired by sluggish demand in Europe and an anticipated slowdown in growth in the United States this year. Volkswagen AG , for example, had forecast vehicle demand in China to grow at annual rates of between 5 and 7 percent over the next five years. Jochem Heizmann, head of Volkswagen's China operations, said he believes the German automaker might have been too conservative. As demand appears poised to expand much faster, "we could sell more (cars) if we have more capacity," Heizmann told reporters in Guangzhou in late November. LMC Automotive forecasts an increase of 11 percent this year in China's overall automobile market for passenger cars and commercial vehicles - a forecast echoed by Shanghai-based consulting firm Automotive Foresight. IHS Automotive, another consulting firm, predicts demand to grow 9 percent. CAAM said China's overall demand for automobiles will likely grow 8 to 10 percent this year. WHAT'S DRIVING DEMAND The main support for auto sales, experts say, will likely come from continued strong economic growth in China's interior provinces, as opposed to the previous decade and a half when the bulk of growth was generated in the country's coastal provinces. Another supportive factor is a series of fresh stimulus measures seen likely to be implemented this year by China's new leadership under President Xi Jinping. Those factors, combined with steady personal income growth backed up by falling vehicle prices, will help ensure a second straight year of double-digit growth, according to Yale Zhang, head of Automotive Foresight. "The market is going to grow most definitely more than 10 percent again this year," he said. The Chinese market should be able to comfortably overcome demand-sapping pressures such as auto sales restrictions now being implemented in a growing number of big cities, Zhang and others said. Those sales caps in cities including Shanghai and Beijing are aimed at cutting air pollution and congestion. Among global automakers, Volkswagen, General Motors Co and Ford Motor Co are likely to benefit most from a second year of relatively strong growth. Volkswagen, GM and Ford market some of China's best-selling cars, such as the Volkswagen Lavida, the Buick Excelle, and the Ford Focus. THE JAPAN FACTOR The future for Japanese automakers in China, by contrast, remains clouded. Japanese brands led by Nissan Motor Co Ltd <7201.T>, Toyota Motor Corp <7203.T> and Honda Motor Co Ltd <7267.T> are seen unlikely to benefit fully from China's renewed strength because of lingering political tensions between Beijing and Tokyo that have fanned anti-Japan sentiment and depressed their sales in China. Sales on a month-by-month basis recovered to pre-crisis levels for many Japanese brands toward the end of last year. Toyota for instance forecast 20 percent growth in China sales to about 1.1 million vehicles this year, compared with year-on-year growth of 9 percent in 2013. Still, some industry executives and analysts doubt a convincing reversal of fortunes for Japanese automakers. The main source of worry comes from Japanese Prime Minister Shinzo Abe's visit last month to the Yasukuni war shrine that is seen by critics as a symbol of Japan's wartime aggression, which infuriated China and South Korea and prompted concern from the United States about deteriorating ties between the North Asian neighbors. "The political tension will likely continue," said He Caiman, deputy secretary general of the Guangzhou Association of Automobile Manufacturers, citing Abe's Yasukuni visit. "For Japanese automakers, this is the biggest risk to their growth, and something out of anyone's control." Already, the collective Japanese share of China's passenger car market fell to 16.6 percent in 2013 from 23 percent in 2011, according to LMC Automotive, following the flare-up of anti-Japanese sentiment triggered by the territorial dispute in late 2012. That year, Japan's share fell to 19.2 percent. To reverse the trend, Japanese brands are gearing up for a big new product blitz this year after spending much of the past year and half on the sidelines. Nissan, for instance, plans to launch production of upscale Infiniti brand cars in China and launch the redesigned X-Trail SUV this year while also adding new models under the Venucia brand it jointly runs with Dongfeng Motor Group Co Ltd <0489.HK>. Toyota, meanwhile, late last year launched the redesigned Rav4 SUV, as well as the redesigned Yaris and Vios - a trio of key strategic cars aimed at entry-level buyers, a group that is multiplying in China. "This is our year to jump forward. Our biggest fear is China's retaliation in response to Abe's recent visit to Yasukuni," a senior Beijing-based Toyota sales executive said. "It's usually tit for tat." Honda, meanwhile, is expected to launch the significantly redesigned Fit this year, along with other new models, which a Honda official said are likely to include a compact SUV and a full-size minivan. "Japanese brands are going all-out to appeal to almost every segment of the Chinese consumer diasporas," said Namrita Chow, a Shanghai-based analyst for IHS Automotive. (Editing by Matthew Lewis)