Sept. 7 (Bloomberg) -- China said automakers should “keep their heads cool” to prevent overcapacity, even as it forecast a 28 percent jump in vehicle sales this year.

It’s unclear whether growth can be sustained in the long term, Chen Bin, chief director of the industry coordination department at the National Development and Reform Commission, said at a conference in Tianjin on Sept. 5.

Chinese drivers may buy 12 million vehicles this year, Chen said, helped by tax cuts and rural subsidies that are due to expire at year’s end. The government hasn’t said whether it will extend these programs into 2010.

“There may be a risk of overcapacity in the future,” said Lin Huaibin, a Shanghai-based analyst at IHS Global Insight. “There has been more demand than supply this year but that’s because of the government stimulus measures.”

PSA Peugeot Citroen, Europe’s second-biggest carmaker, dropped a plan to build a third factory in China with Dongfeng Motor Group Co. in July. The existing plants, with a combined annual capacity of 450,000 vehicles, are “quite sufficient,” spokesman Pierre-Olivier Salmon said at the time.

Surging Sales

China’s vehicle sales jumped 23 percent in the first seven to 7.2 million, exceeding domestic production of 7.1 million, according to data from the China Association of Automobile Manufacturers. Automakers tapped excess inventory from last year to make up the shortfall, said Lin.

“The government has been talking about their concerns about overcapacity for several years now, but it hasn’t happened yet,” said Zhang Xin, an analyst at Guotai Junan Securities Co. in Beijing. “They should only be worried if we can’t sell cars.”

Carmakers are utilizing almost 80 percent of their capacity, according to Chen. That is considered “normal,” Lin said.

Automakers are focusing on China as it withstands a global slump in car sales. U.S. auto sales plunged 32 percent to 5.8 million in the first seven months.

General Motors Co., the biggest overseas automakers in China, last month agreed to set up a commercial-vehicle venture with China FAW Group Corp., its third manufacturing deal in the country. Nissan Motor Co. and Dongfeng Motor Corp. announced a 5 billion yuan capacity expansion plan in July.

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Last Updated: September 7, 2009 01:39 EDT