So, who

A trawl through the business news archives can turn up some interesting relics. Take this headline from the People's Daily in 2001: "China's Car Sales to Hit One Million by 2005". Such days of innocence. In 2003 more than 2m cars were sold. For 2004 the forecast is between 2.4m and 2.6m. And for 2005? Well, few are predicting any return to the days of near 100% growth.

Certainly 2004 was far from the great year that many in the industry had hoped for. Sales figures roller-coastered and manufacturers fought to maintain market share with a series of price cuts.

Several argued that such cuts were unsustainable, actually deterring purchases by building anticipation of more cuts in the future.

It's a position that Michael Dunne, founder of industry consultancy Auto Resources Asia (ARA), rejects. "I think many people looked at the decline in sales and tried to rationalize that with the price cuts," he said. "We started off with very high prices and, as localization of parts continues to bring down the cost of production in 2005, there's still plenty of room for them to come down further."

To some, it was a classic case of industry looking at China through rose-tinted spectacles. The "usual mistake is to extrapolate the initial trend of high prices and growth into 1.3 billion people," said Andy Xie, Morgan Stanley's chief Asia economist based in Hong Kong.

While he agreed that the initial explosion of growth may have blinded some, ARA's Michael Dunne said that what is happening is an "intermediate leveling" of demand.

He ventured that the dropping of import quotas at the beginning of 2005 under China's WTO commitments would have only a limited effect on the price of premium marques. "Tariffs have largely bottomed out now at 25%, so in terms of the bulk, low end of the market, imported cars still won't be competitive."

Barring any dramatic government gesture easing its restrictions on credit, he said he expected to see moderate growth in auto sales of about 10% in 2005.

Only in China could 10% growth be considered moderate. In the stagnant markets of Europe or North America, a projection like that would have car industry folk jumping for joy.

"We're looking at the next surge in demand not coming until around the 2006-2008 mark," Dunne said. "That's when the people who bought cars in the last couple of years will begin to look at replacing them."