(Adds comments from executive interview)
By Samuel Shen and Kazunori Takada
GUANGZHOU, China, Nov 20 (Reuters) - BMW's China head expects profit margins to narrow as the German premium automaker steps up localization to maintain double-digit growth amid slowing demand and tougher competition in the world's biggest auto market.
"Everything is normalizing in China - the market growth, the volume growth, the margin growth," said Karsten Engel, BMW's China chief executive. Engel was speaking in an interview with Reuters at the Guangzhou autoshow on Thursday.
"In the coming years...we expect the premium market (in China) to grow around 10 percent, and for us, a little bit more. The breakneck growth of 30 to 40 percent will not come back again," Engel said.
A sudden slowdown in China's car market in the middle of the year knocked BMW's third-quarter China growth to about 8 percent, from over 20 percent in the first half.
"In the middle of the year...the dealers said, 'Stocks are building up and we should be careful,' so we reduced supply and we reduced a bit of speed," Engel said. "That's why Q3 was a bit lower."
To beat the broader market, BMW aims to double the range of locally produced models to six in the course of the current decade, Engel said. That strategy would enable BMW to avoid hefty import taxes and price the cars more competitively in China.
German brands BMW, Daimler AG's Mercedes-Benz and Volkswagen AG's Audi AG currently dominate China's premium car market. But they're being increasingly challenged by newcomers such as Lincoln, the luxury brand owned by Ford Motor Co, and Nissan Motor Co Ltd's Infiniti.
Competition and the ongoing trend of selling smaller, and cheaper premium models are weighing on margins.
"What we do see is the trend downwards," Engel said. "On pricing...We have to be competitive in the market."
To achieve "healthy, steady" growth which is less vulnerable to market fluctuations, Engel said BMW and its dealers need to broaden revenue streams from businesses including auto-financing, used-car sales and after-sales services. (Writing by Adam Jourdan; Editing by Kenneth Maxwell)