China now boasts a glitzy annual car show

Just 177,500 vehicles were sold last month, down by more than 19% from April, the China Association of Automobile Manufacturers said.

The decline reflected tighter credit terms designed to help prevent the fast-growing economy from overheating.

It comes just as global car firms are expanding rapidly in China.

Last week, GM, the world's biggest carmaker in terms of sales, said it planned to spend $3bn in an effort to double its Chinese production capacity over the next three years.

Unfazed

Altogether, foreign car makers have pledged to spend a total of $13bn by the end of the decade, an investment which will triple the country's total car manufacturing capacity.

This has stirred fears that the supply may soon outstrip demand, with the Chinese government warning that capacity could reach 14 million vehicles a year against demand of just 7 million by 2007.

Fears that the bottom could be falling out of China's booming car market - now ranked the third biggest in the world - forced auto stocks sharply lower last week in Hong Kong.

However, analysts remained confident, pointing out that the latest sales figure for May, while down sharply on the previous month, were still 21% up on the same period one year ago.

"Judging from what we know now, the next couple of months' sales are probably going to be down," said Christopher Lee at Standard & Poor's Asian Equity Research.

"If I took a 12-month view, I think maybe you'd see car sales picking up at the end of the year."