China's auto sector has great growth potential as only an average of 20 people per 1,000 own cars compared with global figures of 120 per 1,000, the China Daily reported Tuesday, citing Chen Qingtai, deputy director of the State Council's Development Research Centre.

"New vehicle sales in China will increase by at least 10 percent annually within the next two decades, also given a lift by the nation's steady economic growth, which is expected to be seven percent a year," Chen said at an automobile conference in the southern city of Guangzhou.

Hoping to cash in on the world's fastest-growing car market, most foreign auto giants have set up manufacturing bases in China.

While that means the auto industry will provide jobs and contribute to long-term economic growth, Chen cautioned that difficulties lie ahead.

He warned that car ownership, forecast to rise to some 57 million units by 2010 and 130 million by 2020, will squeeze oil supplies.

Annual sales of new vehicles in China alone are expected to exceed 13 million units within the next 10 years, up from 4.4 million last year.

"As a result, China will depend on oil imports more heavily because domestic oil reserves are limited and the nation's energy security will be greatly affected," Chen said.

Auto vehicle annual oil consumption is expected to grow to 138 million tonnes annually by 2010, accounting for 43 percent of China's total oil demand.

By 2020 the gas guzzling will grow to 256 million tonnes, or 57 percent of total demand put at 450 million tons annually, Chen said.

In 2000 mainland autos consumed 65.6 million tons of oil.

Such expansion will ramp up exhaust emissions exacerbating China's already serious pollution problem.

Vehicle exhaust emissions will account for 79 percent of total air pollution in China by next year, according to a forecast by China's State Environment Protection Administration.

"Urban pollution will mainly come from automobiles instead of coal if we fail to effectively control auto exhaust emissions," said Chen.

In addition, congestion that has slowed traffic to a crawl during rush hours in cities like Beijing and Shanghai is set to get worse as car ownership continues expanding.

"The government is not well prepared for these challenges and changes brought about by ordinary people's ownership of cars," Chen said.

It should develop a clear and farsighted strategy for the auto industry, including stricter regulations in the areas of quality, environmental protection and after-sales services, he added.

"The government should take market-oriented measures, especially taxation and charges, to encourage consumers to buy low-emission cars, limit the use of luxury cars and guide automakers to develop and produce vehicles suitable (for) China's resource conditions," Chen said.

TERRA.WIRE