Carmakers, even as they contend with a glut of plant capacity at home, are expanding aggressively in China.

General Motors, Hyundai, BMW and Volkswagen have all announced plans in recent months to increase their production in a country whose booming vehicle sales propelled it past the US as the world's largest vehicle market last year.

PSA Peugeot Citroën last month said it was in talks to form its second joint venture in the country, and that it was posting a board-level executive to Shanghai.

Carmakers are taking heart from surging sales and China's low car ownership rates. The country has only about 41 cars per 1,000 inhabitants, compared with about 900 in the US, according to Goldman Sachs research.

VW, the market leader, calls China its “second home market”, but it is really its first: the German group sold 457,000 cars there in the first quarter, more than 25 per cent of its total, and the most by far for any country.

But like ghosts at the proverbial feast, some analysts are warning that a potentially costly capacity bubble might be building up in the region.

“Our fear is that China is set to see [added] capacity outstrip demand, as the Chinese national government and local state governments all promote an auto industry expansion,” says Max Warburtons, analyst with Sanford Bernstein.

Another danger as China's weight in the global industry grows is that carmakers risk becoming too dependent on a single market, and any volatility that may come with that.

In a notoriously cyclical industry, carmakers have been caught out at least once before after overcommitting resources to a big emerging market.

In the late nineties, many were overly exuberant in investing in Brazil, whose market slumped badly in 2002, leaving them with many underutilised lines in their plants.

Sales growth aside, China's market offers carmakers big profit margins, as many consumers are less price sensitive than their western counterparts and favour larger cars.

Germany's luxury producers BMW, Daimler and Audi are doing brisk business selling long-wheelbase, chauffeur-friendly versions of their cars with all the extras.

Carlos Ghosn, chief executive of Nissan, told the Financial Times last week that China had replaced the US as its most profitable market.

VW's Chinese operations reported a pre-tax profit of €286m ($342m) for the first quarter, 41 per cent of the total €703m it made during the period.

VW's export of components to China means that the true scale of its dependence on the market may be larger, analysts say.

Commerzbank analyst Daniel Schwarz estimates that VW derived more than half of its profit from China in the quarter.

BMW made almost half of its €449m operating profit in the first quarter in China from imported and locally produced vehicles, analysts estimate.

Industry executives acknowledge that the first quarter was atypical because of unusually rapid growth in China, which has since slowed.

Still, analysts warn that BMW's and Daimler's profit margins in China will come under pressure as they shoulder the costs of ramping up investment and begin selling a higher proportion of less profitable vehicles as they expand their businesses.

“Because of a weakening in their mix and a higher share of local production, we expect growing burdens for BMW and Daimler, despite market share gains overall,” Horst Schneider of HSBC wrote in a recent report.

Another risk for Germany's premium producers especially is that China's government might favour rival brands in official car fleets – something that has played a role, for example, in record Chinese sales at Audi.

“The main risk is that China wants to have its own premium car brand and decides that public authorities will have to buy it,” says UBS analyst Philippe Houchois.

GM, China's second-biggest carmaker, reported $400m of equity income from its Chinese joint ventures in the first quarter of this year.

GM sells more vehicles in China now than it does in the US, and its international operations – primarily China and Brazil – contributed about the same operating income to the company in the first quarter, according to Tim Lee, who heads the division.

In a recent interview, Mr Lee denied GM was putting too many eggs in the China basket: “This is a company that has revenue streams around the world,” he said.

There are some signs that carmakers are planning conservatively.

Martin Winterkorn, chief executive of VW, recently said he expected the Chinese market to grow by at least 10 per cent per year through 2014 – modest expectations for a market that grew by 45 per cent last year.

Analysts have expressed concerns about overcapacity in China before, that were later put to rest by fast growth in the market.

Calm MacRae, industry analyst with PwC, says that current excess capacity in China, at 2.4m units, is little changed from 2005, and utilisation is better than it was then because of “stratospheric growth in the market in 2009”.