The central government’s clampdown on official waste and extravagance has put the brakes on China’s luxury vehicle market in the first quarter of the year. Sales growth for the luxury vehicle sector, dominated by German brands Audi, BMW and Mercedes-Benz, slowed to 4%, far below the 13% annual growth in the passenger car market, according to the China Association of Automobile Manufacturers (CAAM). China’s luxury vehicle sector has grown at an annual average of 36% in the past 10 years, according to a report by consulting firm McKinsey & Co. Analysts attributed the decline to new guidelines to improve officials’ working style, and strict policies to curb the use of public funds. The question is how strict the rules will be enforced. “The issue may hopefully set off a public trend for less-expensive vehicles in the short term,” said Cui Dongshu, Deputy Secretary General of the China Passenger Car Association (CPCA). McKinsey & Co said in its report that China is expected to overtake the United States as the world’s largest premium car market by 2016, selling more than 2.3 million units that year and hitting 3 million by 2020. McKinsey found that the average annual disposable income of 1,200 Chinese luxury car owners interviewed was CNY450,000, but those with annual incomes of CNY100,000 to CNY200,000, the minimum income range regarded as able to afford basic luxury cars, is growing rapidly in China. Potential also comes from the quickly developing lower-tier cities in China. According to Morgan Stanley & Co, premium car dealerships still have no presence in 111 large Chinese cities. As the government directly accounts for no more than 2% of the car market, and SOEs contributed about 5%, “favorable consumer sentiment towards luxury vehicles outside of government and SOEs purchasing will likely continue to drive this segment of the market forward,” said Thomson. “At the same time, most commentators believe that it will still take at least five to 10 years for a domestic Chinese manufacturer to develop a genuinely competitive substitute offering at the luxury end of the market,” the China Daily reports.