To address national traffic congestion issues, the government should explore better road plan-ning and traffic management instead of mulling ways to curb an auto-buying spree, a top official with the China Association of Automobile Manufacturers (CAAM) said Thursday.

"The negative effect of restricting car purchases will be very serious," Xiong Chuanlin, assistant secretary general of the association, said Thursday at its monthly press conference.

"Any stumble in the auto sector, one of the largest contributing industries to the nation's GDP, will surely (drag down) the national economy." Local media have reported recently that proposed government measures may limit each Beijing resident to only one car while residents without residency, must have worked in the city for at least five years and have a parking permit before being allowed to buy a vehicle.

This news, coupled with the likely expiration of the small vehicle tax breaks, rural auto sub-sidies and incentives to buyers trading in old cars, triggered a near across-the-board slide in auto shares in Shanghai Thursday.

Leading the pack was FAW Car Limited Co, which saw its stocks tumble by more than 5 percent.

In addition, Hong Kong-listed BYD Co, the battery and auto manufacturer invested in by Warren Buffet, lost 2.51 percent.

Deutsche Bank downgraded BYD's rating to "sell" Wednesday in view of market expectations of less aggressive growth in the next two fiscal years.

Policy makers should be more concerned about the influence of restraining auto purchases rather than that of the phasing out of the three stimulus programs, said Xiong.

Thursday CAAM raised its full-year sales forecast from 17 million to 18 million units for 2010.

Xiong believes China's auto market has returned to pre-crisis levels and national subsidies for fuel-efficient small cars will continue to bolster the industry.

But if a car-purchasing cap is put in place in the capital city, other provinces and cities will follow, said Xiong, who was reluctant to forecast 2011 full-year sales.

He predicts a 10 percent sales increase next year - as long as no new government curbs on auto buying are implemented.

"The growth of China's auto market is not the problem," said Xiong.

"Policymakers should seek to provide people more public transportation choices and make our roads more efficient for drivers, cyclists and pedestrians."

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