Passenger car sales in the first half climbed a more moderate 10.6 percent to 1.843 million units, said the China Association of Automobile Manufacturers, in line with expectations for 2005 growth of 10-15 percent.

Toyota Motor, the world's second-largest automaker, lifted its 2005 sales target for locally made vehicles by 8.6 percent to 145,500 units, and is preparing to more than double capacity by 2006, said an executive and an official with an associated firm.

Japan's top car firm joins General Motors, Hyundai Motors and Peugeot Citroen in boosting annual sales targets in China, after an upturn in demand emerged late in the second quarter.

``They have every reason to hike the targets, as shipments moved faster than expected in the first half,'' said an executive at a major Beijing car dealership.

Carmakers are betting on a partial return to the roaring growth of 2003, when sales nearly doubled. The industry association said June passenger car sales in China leapt to 375,500 units, boding well for the rest of the year.

Toyota's venture with FAW Group - China's top local vehicle maker - aimed to move 145,500 cars and sports-utility vehicles this year, up from an earlier 134,000, according to an executive at a company that manages their sales. The venture sold 52,000 units in January-May, up 58 percent from a year earlier, a Beijing-based Toyota executive said separately.

Analysts warn also that a resurgence in car sales after a dramatic slowdown in growth in 2004 might not translate into profits - not if carmakers keep slashing prices while Beijing clamps down on easy auto loans.

China, once an easy profit center, has become one of the industry's most intense battlegrounds, prompting firms to slash prices and launch models to appeal to a growing class of nouveau riche developing a taste for cars.

Global automakers are spending some US$15 billion (HK$117 billion) to triple annual capacity to more than seven million cars by 2008 - sparking fears of an impending glut.

Toyota - which now sells the Vios, Corolla and Crown sedans - plans to launch the Reiz and the Prius hybrid car this year.

``We will continue to offer new models in China ... so long as there's a need for them,'' said a Beijing-based Toyota executive. ``We're optimistic about the second half.''

Toyota is on track to raise capacity in China to 335,000 units by mid-2006, when a new plant in the south starts full operation. Capacity at existing plants in the northern cities of Tianjin and Changchun and southwestern Chengdu is now around 135,000 units annually.

Analysts have said car sales are expected to grow 10-15 percent this year, matching growth in 2004 but well off a doubling in 2003. But signs that growth in demand could be on the rebound have surfaced. Peugeot last month raised its 2005 China unit sales target by 17 percent, followed by Hyundai hiking its target by 15 percent.

GM said it is aiming for sales growth in excess of 20 percent. REUTERS