UPDATE 1-Volkswagen H1 China-HK car sales up 22.7 pct yr/yr

* China-Hong Kong H1 car sales jump 22.7 percent on year

* Sales gain from Chinese government’s incentive policies (Adds more details)

SHANGHAI, July 13 (Reuters) - Volkswagen AG VOWG.DE, Europe's largest automaker, said on Monday that vehicle sales in China and Hong Kong during the first half of this year jumped 22.7 percent from a year earlier, benefitting from a revival in the world's third-biggest economy.

Volkswagen and its two China joint ventures sold a record 652,222 units, including 538,969 Volkswagen-branded vehicles during the January-June period, the company said in an e-mailed statement.

“China is currently a spotlight in the international automotive market,” Volkswagen China President Winfried Vahland said in the statement.

“The increase of our deliveries to customers has been in line with the market growth in China, which benefitted from the effectiveness and the success of the Chinese government’s incentive automotive policy.”

China has halved purchase tax on small vehicles, announced incentives for people to replace old cars under an economic stimulus package aimed at boosting domestic consumption to counter a slump in exports.

Demand for cars in China has rebounded, with sales surging 47 percent in May alone. China is at the start of another boom in car sales that is being propelled by rising incomes in third-tier cities and could continue for a few years, JPMorgan China economist Frank Gong said last week.

To meet rising demand, Volkswagen said on Monday that it will start producing all new Volkswagen Golf this year in China, as the other two brands made in the country - Audi and Skoda - achieved record sales during the first half.

Audi sales rose 11 percent from a year earlier to 66,866 units, while Skoda sales jumped 46.2 percent to 46,144.

Volkswagen also said it will make two Sport Utility Vehicle models in China by the end of 2009, with its factories in eastern Nanjing and western Chengdu supporting the China expansion.

Italy's Fiat FIA.MI last week announced plans to start car and vehicle production in China with local partner Guangzhou Automobile Industry Group.

China’s car sales may grow 20 percent this year and 15 percent in 2010, as car ownership in the country is expected to jump fivefold in the next decade to reach 148 cars per 1,000 residents by 2020, from a proportion of just 2.9 percent now, according to Credit Suisse.

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