China retained its crown as the world's top auto market by selling a record number of vehicles in 2010.

Vehicle sales across the nation grew a robust 17.9 percent in December 2010 from a year ago to reach 1.67 million units, said the China Association of Automobile Manufacturers (CAAM). The December figure brought the amount for the entire year to 18.06 million units, up 32.37 percent year on year.

Such euphoria has kept China in the spotlight on a dim global automobile landscape. The U.S. market regained some of its lost ground, with sales rebounding to 11.5 million for 2010, but still well below the pre-crisis level of more than 16 million.

While cheering about the auto euphoria, analysts are wondering how much longer the good times could possibly continue since the government has rolled back some policy incentives, including a favorable purchase tax for smaller cars, subsidies to rural buyers and an old car replacement program.

Besides this, Beijing's latest decision to issue a limited number of new license plates this year may also take some steam out of the market, and more cities are expected to follow suit.

After a year of turbo-charged growth, the auto boom is about to take a breath, with growth dipping to less than 15 percent, said Dong Yang, Secretary General of CAAM.

The generous incentives have brought most potential buyers to the table, leaving little room for growth this year, said Rao Da, Secretary General of the National Passenger Car Information Exchange Association.

But the slowdown will provide a catalyst for manufacturers to improve their technological expertise and product quality, he said.

Over the long term, the industry still has deep potential of growth due to low car ownership, said a recent report by the market research company Nielsen

Car owners in first-tier cities like Shanghai are starting to trade up—good news for luxury models. But the real opportunity is in smaller towns where income grows fast, it said.