China poised to be the world's largest automaker

China, which last year surpassed the United States to become the second largest auto-making country, is poised this year to topple Japan as the world's top car producer, a market research firm said Thursday.

China is bound to eventually overtake the U.S. as the world's largest auto market, and recent developments have accelerated that trend, with Chinese vehicle sales in January, February and March exceeding U.S. monthly sales for the first time ever, a report from AP said.

Last year, China automakers produced 9.3 million cars. That's 600,000 more autos than U.S. manufacturers. Most of Chinese cars are built for its domestic market.

"China's rise to the No. 2 position in global car manufacturing in 2008 marks a major milestone in China's economic ascendancy and the United States' industrial decline," iSuppli analyst Egil Juliussen said in a statement.

During the last five years, China has doubled automobile production, while U.S. manufacturing had fallen nearly 50%. Chinese automakers have benefited from the country's booming economy and the dramatic rise in disposable income of its consumers.

On the other hand, U.S. carmakers have suffered from increasing imports from Canada and Mexico under the North American Free Trade Agreement, as well as from imports from Europe and Asia, iSuppli said. Also, U.S. automakers have outsourced a major portion of their car manufacturing for the domestic market to Canada and Mexico. In 2003, U.S. carmakers built nearly three autos for every one produced in China.

China's production numbers consist of passenger cars and light trucks from domestic companies and joint ventures between Chinese and foreign automakers. The multinational companies build about 50% of the autos in China. Foreign auto brands that are leading auto sellers in China include Volkswagen, General Motors, Toyota and Honda.

China overtook Japan in 2006 to become the world's second-largest vehicle market, thanks to strong sales to the country's fast-growing middle class. With 1.3 billion people, China was bound to catch up with the U.S. - population 300 million - at some point, but the dramatic contraction of the American market could make that happen sooner than expected.

China's auto market has cooled after several years of torrid growth, and authorities have implemented tax cuts, subsidies for small-car purchases and plenty of promotions are luring car buyers back into showrooms.

The moves to stimulate consumer demand is part of broader attempts by Beijing to counter the plunge in export demand that is dragging on China's economy.

However, China is not immune from the impact of the global economic downturn. Car production is expected to decline by 6.5% this year. Nevertheless, the country will outperform the overall global market, which is expected to follow by 25.1%, iSuppli said.

Japan surpassed the United States in 2006 to become the world's largest car producer, with 55% of its production going overseas. Despite falling auto sales last year, Japan barely reduced production, generating a major excess in inventory that will force Japan to dramatically cut production this year.

"The result is that China will have the lowest production cutback of any nation and will become the auto production leader in 2009," Juliussen said.