RPT-UPDATE 3-China 2011 car sales rise at slowest annual pace

* Car sales slow to 5.2 pct after incentives expire

* Foreign brands help China retain ranking as world's top market

* Outlook may improve on demand in lower-tier cities

By Fang Yan and Ken Wills

BEIJING, Jan 12 (Reuters) - Car sales in China climbed 5.2 percent in 2011, the slowest pace since the nation's car culture took off at the turn of the century, as consumers shunned local brands after Beijing scrapped tax incentives for small cars.

Even so, solid demand for foreign marques helped China keep its ranking as the world's top market, with total car sales of 14.5 million, about 2 million more than in the United States last year.

The outlook for 2012 is expected to improve, thanks to still-robust automobile demand in lower tier cities, which are catching up with major metropolitan areas as major growth engines, industry observers say.

"Local car makers were hurt in the past year after the incentives were gone, but most overseas players remained in pretty good shape," said Sheng Ye, associate research director at industry consultancy Ipsos' Greater China region.

Beijing in 2009 introduced a stimulus package, including tax incentives for cars with engine sizes of 1.6 litres or smaller, a move that spurred car sales and propelled China to surpass the United States as the world's largest auto market.

The incentives were scrapped in 2011, sending many who had intended to pick a Chery or Geely car to get the perks, to the showrooms of General Motors and Volkswagen.

Local government steps to tackle traffic gridlock, such as imposing quotas on new car registrations in Beijing, also crimped car sales. In the Chinese capital, new car deliveries plunged 56 percent to 403,500 in 2011, official data showed.

Collectively, local brands made up 29.1 percent of car sales in 2011, down 1.78 percentage point from a year ago, according to the China Association of Automobile Manufacturers (CAAM).

German and U.S. brands, however, have both gained ground, up by 1.91 and 0.77 percentage points, respectively.

While some industry insiders remain cautious on the 2012 outlook, many others, including Wang Fengying, president of top Chinese SUV maker Great Wall Motor, and Xu Changming, general director with the Information Resource unit of the State Information Center (SIC), are betting on a 10 percent gain on growth potential in smaller, inland cities.

CAAM forecast that car sales for 2012 would grow by 9.5 percent.

Statistics provided by the SIC showed tier 1 cities contributed 30.7 percent of car sales in 2010, down from 35.7 percent in 2007, while the ratio in tier 3 cities has climbed to 29.1 percent from 24.7 percent during the period.

Still, only about 30 out of 1,000 people own cars in the northwestern provinces such as Gansu and Qinghai now, a far cry from more than 200 in the Chinese capital city, according to Ipsos.

In December, passenger car sales rose 4.6 percent to 1.37 million in China. Overall vehicle sales for the full year, including trucks and buses, came to 18.51 million, up 2.5 percent, CAAM said.

In the United States, the 12.5 million light vehicle sales in 2011 represented a 10.3 percent year-on-year rise.

In Japan, however, car sales plunged 16.7 percent last year to a 43-year low due to production disruptions in the wake of the devastating earthquake and tsunami in March and recent flooding in Thailand.

LUXURY BRANDS, GM, VW SHINE

General Motors remained China's top seller for the year, with a tally of 2.55 million vehicles, up 8.3 percent. Its mini-van venture in southern China accounts for around 47 percent of the total.

Volkswagen AG sold 2.25 million Volkswagen, Audi and Skoda cars in mainland China and Hong Kong, up 17.2 percent from a year earlier.

Nissan Motor followed suit with an annual tally of 1.25 million in China, up 21.9 percent.

German luxury carmakers are also patting themselves on the back thanks to China's growing ranks of its moneyed class.

While BYD and other local nameplates had to resort to aggressive price cuts to drive sales, buyers of BMW , Audi and Mercedes-Benz brands are placing orders weeks or even months in advance for imported fancy sports cars or SUVs with price tags well over 1 million yuan (about $159,000).

Audi, the largest luxury brand in the country, sold 313,036 cars, up 37 percent. Smaller rival Volvo Car, owned by Geely, moved 47,140 cars, up 54.4 percent.

"The upscale segments were little affected by the overall market slowdown. There are so many rich people in China, not just in Beijing or Shanghai, but in smaller, inland cities as well," said Jenny Gu, a manager at industry consultancy LMC Automotive Asia Pacific.

Honda Motor, Toyota Motor and Mazda Motor , battered by the devastating March earthquake and floods in Thailand, however, all ended the year with a decline in sales.

Geely Automotive Holdings also struggled, with annual deliveries at 421,385 cars, far short of its target of 480,000. Warren Buffett-backed BYD sold 448,484 cars in China, down 13.7 percent year on year.

Major state auto groups SAIC Motor and Dongfeng Motor Group Co both reported double-digit sales gains for the year, thanks to brisk sales of foreign cars made at their joint ventures.

SAIC operates car ventures with GM and VW, while Dongfeng counts Nissan among others as its partners.