SHANGHAI – China likely overtook the U.S. in vehicle sales for the first time last month, a trend that could make China into the world's largest auto market this year.

Official data for China's auto sales in January will not be out until next week. But they are expected to show sales at about 790,000 units for the month, Zhang Xin, an analyst at Guotai Junan Securities in Beijing, said Wednesday.

In the U.S., meanwhile, auto sales in January tumbled 37 percent to 656,976 vehicles, the lowest monthly level in 26 years.

"This is the first time in history that China has passed the United States in monthly sales," Mike DiGiovanni, General Motors Corp.'s executive director of global market and industry analysis, said in a conference call late Tuesday.

For all of 2009, DiGiovanni projected that Chinese auto sales are likely to hit 10.7 million vehicles, more than the estimated 9.8 million unit sales in the U.S. this year. Autodata Corp. forecasts 2009 U.S. sales at 9.57 million.

Commercial vehicles such as trucks and buses make up a larger chunk of China's vehicle market than in the U.S., causing some people to say comparing such statistics is misleading.

But China, with its 1.3 billion people, was bound to catch up with the U.S., population 300 million, sooner or later, and the latest trends suggest it may be sooner than expected due to the drastic contraction in the American auto market.

General Motors is one of China's biggest automakers, with billions of dollars invested in joint ventures and a record 1.09 million vehicles sold in 2008, up 6 percent from the year before.

Struggling GM has been counting on the growth in China, which passed up Japan in 2006 to become the world's second-largest vehicle market, thanks to strong sales to the country's fast-growing middle class.

But lately China's car market has been cooling as consumers hold off on big purchases. Domestic vehicle sales rose only 6.7 percent in 2008 to 9.38 million units — the first time growth has fallen below 10 percent since 1999.

And January's sales in China fell about 8 percent from the monthly record 860,000 vehicles in January 2008. That same month in the U.S., sales topped 1 million.

After seeing sales slow abruptly in the autumn, Beijing moved aggressively to prop up the industry it has nurtured over the past two decades.

Last month the government announced it was halving the tax on purchases of cars with engines less than 1.6 liters, to 5 percent, until the end of the year. It is spending 5 billion yuan (about $730 million) on subsidies to farmers replacing their three-wheeled vehicles or outdated trucks with small, 1.3-liter or less vehicles.

The government has also pledged to spend 10 billion yuan ($1.5 billion) on upgrading automakers' technology and developing alternative energy vehicles. The push is to promote more energy efficient vehicles while improving the competitiveness of the country's highly fragmented auto industry.

So far, the steps seem to be helping somewhat.

"Sales rebounded last month due to the vehicle purchase tax cut," said Gao Zhiyuan, a salesman at Shanghai Automobile Industry Hudong Sales Co., a Volkswagen dealership.

"Customers feel it's a good chance to buy a car for less since the tax cut is temporary. Also, with lower gasoline prices people are less worried about fuel costs," Gao said.

The dealership has offered free laptops, fuel cards worth hundreds of dollars, and deep discounts on its VW Polos and other economy models.

Small cars accounted for nearly two-thirds of the vehicles sold in China last year, a trend policymakers are encouraging given worries over pollution and rising dependence on imported oil. The tax cuts announced in January left in place higher taxes on big-engine gas guzzlers that were announced last summer.

Strong demand for smaller cars is helping both domestic and foreign-brand automakers.

While few automakers have released monthly sales figures yet, South Korean automaker Hyundai Motor Co. reported its China sales rose 35 percent in January from a year earlier, to 42,790 vehicles.

But even though China's auto industry may appear to be weathering the crisis with less of the misery seen in the Detroit and elsewhere, it still has a long way to go to catch up with global rivals, analyst Zhang cautioned.

"Our technology is still weak. We still have to copy or use Western advanced manufacturing systems. That's kind of awkward, isn't it?" he said.

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