Total vehicle sales, which include cars, trucks and buses, rose 2.5 percent to 18.5 million, according to data released by the China Association of Automobile Manufacturers Thursday, compared with the 3 percent median estimate of five analysts surveyed by Bloomberg. The country remained the world's biggest vehicle market for a third straight year, with demand projected to grow about 8 percent this year, the industry group said.

Delivery growth slowed from the 32 percent rate in 2010, after China withdrew a two-year package of tax breaks and rebates that helped the country overtake the United States. Higher interest rates and restrictions on new vehicles in Beijing also deterred purchases, adding to supply disruptions that sent Honda Motor Co. to its first sales decline in the country.

"China's auto sales growth won't reach anywhere near the past couple of years as it scales back to a more sustainable pace," said Jenny Gu, an analyst at industry researcher LMC Automotive in Shanghai. "The past few years were boosted by government incentives."

Passenger-car deliveries rose 5.2 percent to 14.5 million, slowing from the 33 percent growth in 2010, according to data from the automakers association. Commercial vehicle sales, a category that includes buses and trucks, fell 6.3 percent to 4.03 million units.

Congestion, Pollution

Traffic congestion and worsening pollution prompted Beijing's municipal government to impose a quota on new vehicles last year and distribute license plates through a monthly lottery.

More cities are expected to introduce measures limiting vehicle purchases and driving, Shi Jianhua, deputy secretary general of the industry group, said at a briefing in Beijing. A slowdown in fixed-asset investment may undermine demand for commercial vehicles, he said.

Local automakers saw the biggest drop in sales last year, the association said in today's statement. Among domestic manufacturers, Chongqing Changan Automobile Co., BYD Co.and Chery Automobile Co. reported sales declines.

China vs U.S.

Sales growth in China outpaced the U.S. every year before 2011, according to data from the association stretching back to 1998. U.S. light-vehicle sales climbed 10 percent, or almost 1.19 million, to 12.8 million in 2011, according to researcher Autodata Corp. U.S. deliveries may rise about 5.6 percent this year to 13.5 million, the average estimate of 10 analysts surveyed by Bloomberg.

The rebound in U.S. auto demand is a reversal from 2009, when industry sales plunged to the lowest in more than a quarter century, pushing General Motors Co. and Auburn Hills, Michigan- based Chrysler into bankruptcy along with dozens of their suppliers.

Toyota Motor Corp., Asia's largest carmaker, said last week that China sales rose last year at the slowest pace since at least 2004, increasing 4 percent to 883,000 vehicles. Tokyo- based Honda reported its first annual sales decline in China this week, with deliveries falling 4.5 percent in 2011 to 617,764, as Japan's strongest earthquake in March and flooding in Thailand disrupted production.

Passenger Vehicles

China's gross domestic product expanded 9.1 percent from a year earlier in the third quarter, the least in two years. The pace may have fallen to 8.5 percent in the fourth quarter, according to Citigroup Inc.

Growth in passenger-vehicle demand in China will accelerate this year to about 9.5 percent, rising to 15.87 million units, with vehicle exports projected to rise 25 percent to 30 percent to as much as 1.1 million units, the auto association said.

GM, the biggest foreign automaker in China, increased sales in the nation 8.3 percent last year to a record 2.55 million vehicles, helping the Detroit carmaker regain the global sales crown 18 months after exiting bankruptcy.

Ford Motor Co., which is adding four new plants in China with its partners, said sales grew 7 percent to 519,390 vehicles, its highest tally, boosted by deliveries of the Dearborn, Michigan-based company's Mondeo sedan and Focus hatchback.

Production Overcapacity

Last month, China said it will end a seven-year policy to encourage foreign investment in the automotive manufacturing industry on Jan. 30 to allow for "healthy development." The announcement comes two weeks after the country said it would impose anti-dumping duties on some vehicles imported from the U.S. after failing to block a U.S. tariff on Chinese tires.

Overcapacity in China's automaking industry emerged in 2011 and will probably worsen every year through 2015, Mizuho Securities Asia Ltd. said in a Dec. 30 report. Auto production capacity in the country will probably rise 15 percent in 2012 and 20 percent in 2013, outpacing the estimated 4 percent annual increase in demand, according to the report.