Car sales in China rose 1.6% in July from June to snap a three-month decline, official data reportedly showed on Thursday, but analysts warned against premature celebration amid the lingering impact of brakes on credit.

According to Reuters, they said month-on-month sales in the world’s fourth-largest vehicle market had fallen for three months – a trend that July’s blip would not counter.

A spokesman for the official China Association of Automobile Manufacturers reportedly said July sales edged up to 169,953 sedans.

Sales were up 3.71% on the same month last year. State media had speculated July sales would show a slide from the year-earlier period for the first time, Reuters noted.

“The trend is still pointing downwards for the next couple of months,” Christopher Lee, analyst at S&P Asian Equity Research, told the news agency. “There may be some recovery towards the end of the year, but it’s still too early to see a sales pick-up.”

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Analysts reportedly say car sales this year may grow just 10-20% compared with 2003, when sales almost doubled to about 2 million.

Reuters noted that auto makers such as Volkswagen and General Motors have cut prices in recent months, trying to kickstart sales, and analysts expect more discounting to come.

Volkswagen’s two main Chinese ventures reportedly have said this month that July sales jumped 53% from June as the price cuts helped reinvigorate buyers sidelined by credit curbs.

“What is crucial will be sales in August and September, two traditionally busy months,” Zhang Xin at Guotai Junan Securities, told Reuters. “If there is no obvious spike then, you can be sure of a new round of (price) cuts in October.”

The report said sales have also taken a battering from the drying up of auto loans, which at the end of last year accounted for some 20% of purchases.

“The key is the credit tightening,” S&P’s Lee told the news agency, pointing out that a soaring bad loan ratio had made banks wary about offering new credit.

“Overall, you’re still going to see very cautious sentiment from banks and that’s going to restrict credit to buyers,” reportedly said Lee, who expects 2004 sales to rise by just 10%.