An official association of China's auto industry has warned automakers in the country that they should be cautious about possible overproduction and be prudent when planning to expand production capacity, People's Daily reported today.

In the first quarter of 2010, average monthly auto sales in China have exceeded 1.5 million units, up 50% from a year earlier, according to the latest data from China Association of Auto Manufacturers (CAAM).

With the small-car sales tax cuts scaled down this year, the niche market of passenger cars with 1.6-liter or below exhaust volume, which showed robust growth in 2009, witnessed falling market share in March, according to the CAAM data.

The reduced subsidies and tax cuts led to weak purchasing power. The quarterly growth of China's auto sales was slightly less than 16%, showing that the auto market growth is returning to its "normal" pace, said Dong Yang, vice president of CAAM.

The high growth figures in recent months resulted from weak sales of a year earlier," he said, warning auto markers to be prudent on capacity expansion, not to make forecasts based on the high annual growth rate.

"The automakers should be prepared of market fluctuations," Dong said. "Automakers' current inventories are around one-third of their monthly sales, generally at a reasonable level."