China's vehicle prices may decline steadily in the second half of 2010 because inventories are rising and wholesalers feel pressure to meet sales targets, the country's planning ministry said. 

Automakers may join dealers in offering discounts in the fourth quarter, Cheng Xiaodong, an official with the National Development and Reform Commission, said in a statement. 

China's car prices fell 1.2 percent in the first half from a year earlier, according to the agency. 

Demand in the world's biggest auto market may fall from year-earlier levels in the last six months of 2010, sparking price wars as dealers clear inventories, predicts Credit Suisse Group AG and consultant IHS Automotive.  

Last month, wholesale car deliveries rose at the slowest pace in 15 months.   

"The high prices we saw last year are long gone," said Yu Bing, an analyst at PingAn Securities Co. in Shanghai, who expects a 5 percent price drop for vehicles that cost about 100,000 yuan ($14,750). "Car prices are no doubt coming down."   

China's vehicle sales, which have risen every month since February 2009, began growing at a slower rate in April amid signs of a cooling economy. 

Sales tax

The government also boosted the sales tax on small cars to 7.5 percent this year, after cutting it in half to 5 percent in 2009 as part of economic stimulus measures. The tax cut helped vehicle sales jump 46 percent to 13.6 million units last year, surpassing the U.S. for the first time. 

Wholesale passenger-car sales in June rose 19 percent from a year earlier, the slowest pace since March 2009.

Domestic auto production exceeded sales by 1.3 million vehicles in the first half of this year, the China Automotive Technology & Research Center said on July 5. The Center calculates the average stockpile period –- the interval between a car's production ad registration -– was 55 days in June, up from 41 days in February. 

The disparity between sales and production will last awhile. Even as sales cool off, automakers are introducing new models at a faster pace. Over the  next two months, automakers will introduce more than 20 new models, says the Development and Reform Commission.   

Average price reductions of 5 percent are likely, predicts Yale Zhang, a Shanghai-based analyst at consultant IHS Automotive.