With rising incomes and the desire for premium auto brands China is on the verge of overtaking the United States as the world's biggest luxury car market as early as 2016, according to a research by McKinsey & Company. China is already the second biggest market for "premium" cars after the United States, with sales of 1.25 million vehicles last year. China's premium car sales could reach 2.25 million in 2016 and 3.0 million by 2020, it added in the report.

McKinsey defined the "premium" segment in China as cars costing from 200,000 yuan to 1.2 million yuan (approximately $32,000 to $190,000), excluding "ultra-luxury" cars commanding even higher prices. The U.S. market for premium cars was an estimated 1.7 million vehicles last year and was forecast to rise to 2.3 million in 2020, it said.

German automakers - including Audi, BMW and Mercedes-Benz account for 80 percent of China's premium car market, McKinsey said, but added competition in the segment was increasing. U.S. auto giant General Motors launched a Cadillac brand luxury sedan, the XTS, in the country last week.

China is already the world's biggest auto market, with sales rising 4.3 percent year-on-year in 2012 to 19.31 million vehicles. But slowing domestic economic growth, limits on car numbers by some cities and a political row between China and Japan that hurt sales of Japanese-brand cars weighed on the market last year.

McKinsey said income growth, confidence in the Chinese economy, willingness to pay for luxury cars and a desire to reflect social status were among the factors supporting the premium market. Households purchasing a second car or upgrading from basic transport were a new factor in the market.