In the past few months, China's sedan sales have stalled, auto production has shrunk and fat profit margins have evaporated, reports Xinhuanet.

While many analysts did not expect China's auto market to grow so fast the past two years, few thought it would slow so abruptly either.

Some of China's best-known car companies have been caught off guard amid major expansions to reach buyers who are more price- sensitive. Many assemblers are now reporting poor earnings and their share prices have plummeted.

The CITIC Auto Industry Index, which tracks auto companies listed in both Shanghai and Shenzhen, has plunged 44.35 percent since the start of this year, compared with a 7.8 percent decline for the Shanghai Stock Exchange's composite index.

"People are holding off on buying cars. Investors are holding off on buying auto shares," said Hu Song, an auto analyst with Haitong Securities.

He blames stiffer competition and rising raw-material costs for thinner corporate profits. "The prospects for both markets are so uncertain now," he said.

The sudden cooling of a hot industry has exposed some age-old business risks in China. A period of explosive growth may prove alluring, but not necessarily serve as an accurate gauge of the market's true size, according to analysts.

Now as growth tapers off in a range of industries, evidence of miscalculations is surfacing: empty apartment blocks, a glut in construction steel and rising stocks of unsold cars.

"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 Hong Kong-based chief economist for Asia.

Last year's surprisingly strong sales for luxury cars prompted many companies to bet China's middle class would be the next market to tap. But only scattered pockets of middle-class car buyers have emerged, largely in a few big cities.

Industry analysts say even middle-class Chinese - estimated to total about 60 million people - have been put off by the banks' recent tougher qualifications for giving car loans and rising gas prices.

Making matters worse, price wars among auto companies have resulted in de facto decreases in the value of newly purchased vehicles.

Many middle-class families are shouldering other expenses, including rising costs for health care, school tuition and monthly mortgage payments.

"There was great excitement for the middle class," said Michael Dunne, president of Automotive Resources Asia, a consulting group that focuses on Chinese auto trends. "But these people aren't buying the US$30,000 cars," he adds.

The upshot is many companies who bet on the emergence of a big middle class are now taking a hit.

Sales fell 3.6 percent in September and 1.3 percent in October from the year-earlier months, and many Chinese car salesmen say they have noticed a sharp downshift in buyer interest.

Yet China remains the fastest-growing major auto market in the world with passenger-car sales increased 18 percent in the first 10 months this year.

--Indo-Asian News Service