SHANGHAI, Aug. 29 -- THERE is an ongoing debate in the office of Xiao Chen, an engineer for a telecom company, whether to buy a car or invest in auto stocks.

The 25-year-old believes investments in the current bullish stock market, especially in the auto sector, would reap financial dividends and be a better option than throwing away money on a car amid declining car prices.

Behind his decision, buoyant car sales in China have helped listed car makers gain more profit and the sustained momentum has paved the way for future share price hikes.

Auto-related stocks remain upbeat against overall market performance for the first half of this year after vehicle sales continued to rise more than 20 percent to 4.37 million units in the world's second-largest auto market.

In light of booming car sales, half of the auto makers listed both on the Shanghai Stock Exchange and Shenzhen bourse saw profit increase by more than 50 percent and four of them embraced double growth, according to first half earnings reports released last week.

"In addition to the booming stock market, auto-related stocks are favored because the profitability of car makers was improved for sales pick up and assets optimization, which has more potential for future growth," said Wang Canbing, an independent industrial analyst.

Half-year net income for Shanghai Automotive Co Ltd, the listed unit of China's biggest car maker, Shanghai Automotive Industrial Corp, more than tripled to 2.7 billion yuan (US$355 million).

It sold 840,000 units during the period and generated a sales revenue of 51 billion yuan, an increase of 2,202 percent from a year earlier.

Its share price rose 200 percent from 8.3 yuan at the start of the year to 24.6 yuan at yesterday's close, while earnings per share reached 0.415 yuan for the first half.

The strong market performance came after it sold additional shares to investors last year to expand core business from auto parts to car manufacturing by containing assets in its two joint ventures with General Motors Corp and Volkswagen AG.

Beiqi Foton Motor Co Ltd, one of China's biggest light-vehicle producers, reported profits up by six times to 237 million yuan during January to June from the same period of last year. Its share price rose four times to 14.41 yuan at close yesterday.

According to the preview for their first three quarters' financial results, revenue is widely expected to grow more than 50 percent, indicating the growth still has room to be sustained.

Amid the stock market jumps, institutional investors recently have raised their expectations on the auto sector.

Citic Securities said in a recent report that vehicles would be in high demand with the existing low market penetration as well as improved road conditions.

It estimated auto sales will rise 25 percent this year, leading to a 35 percent increase in the profitability of the car sector and a 30- percent growth in the whole industry.

Li Chunbo, an auto analyst from Citic Securities Co Ltd give a "buy" suggestion on Chang'an Automobile Co Ltd and Haima Investment Group Co Ltd as well as FAW Xiali Automobile Co Ltd while offering "add" advice on FAW Car Corp and Shanghai Auto.

"Particular I am optimistic about Chinese-listed car makers like BYD Auto and Brilliance Auto as China's self-owned cars are grabbing a bigger market share," Li added.

However, an other analyst suggested a more conservative attitude on the auto stocks as the market competition, pivotal for all segments in passenger cars and commercial vehicles, would further intensify.

"As more competitors enter, car makers will offer more price discounts and that will dampen total profits," said Xia Ping, an auto analyst from Core Pacific Yamaichi International (HK) Ltd in Shanghai.