"Serious overcapacity will cause negative market competition, a decline in enterprise efficiency, factory stoppages and many other problems," said Chen Bin, a senior official for the National Planning and Development Commission.

"Blind investment" in the auto sector will exacerbate over-supply in the market and lead to waste, analysts say.

China's auto market overtook the United States in 2009 as the world's largest and will remain so in the coming years, along with China's rapid development of its economy. Sales in 2010 are estimated to increase by about 30 percent after a massive growth of 46 percent in 2009, as China's emerging middle class snaps up cars.

To meet the rising demand now, foreign automakers last year began announcing plans to increase their production capacity. German auto giant Volkswagen has announced plans to open its 11th production plant in China in 2013.

Since the beginning of 2009, Nissan, Toyota, BMW, Hyundai, Chinese automakers FAW, Anhui Province's Jianghuai and Chery all announced plans to build new factories. Some local provinces and cities are also adopting numerous initiatives to encourage expansion of production facilities there.

China's auto market might face a slowdown, coupled with urban transport congestions and parking difficulties, experts say, which will curb Chinese people's consumption of cars.