* Citroen unveils DS5 in Shanghai world premiere
* Smaller mainland city markets hold potential
* Changan partner and PSA Peugeot to launch indigenous brand
* China is "cornerstone" of PSA strategy to be more intl-CEO
* China will account for 30 pct of Citroen sales in 2020
(Adds quotes, details from unveiling)
By Helen Massy-Beresford
SHANGHAI, April 18 (Reuters) - China's car market will continue to grow by about 10 percent a year for several years, the chief executive of PSA Peugeot Citroen said as the French car maker unveiled its new DS5 in Shanghai.
"The decade to come will be a decade in which the Asian market will be the major engine of growth for the automobile sector," CEO Philippe Varin told a joint news conference with Changan, its second Chinese partner.
In a move that illustrates the importance of China, the world's largest auto market, Citroen took the wraps off its new DS5 premium five-seater car in Shanghai in a ceremony the day before the Shanghai auto show opens to the media on Tuesday.
As part of a futuristic show that saw the DS5 driven on to a sloping stage against a backdrop of flashing coloured lights and thumping music, Citroen's managing director, Frederic Banzet, said China would account for 30 percent of the Citroen brand's sales by 2020, compared with the current 16 percent.
Citroen hopes the DS5 will lure younger customers in China, Varin said, adding that the premium sector was particularly important in the Chinese market.
The DS5 is the third in the DS range that revives the name of the iconic Citroen DS cars produced from the 1950s to 1970s without replicating the look of its predecessors.
Referring to the Chinese market in general, Varin told journalists ahead of the show that "10 percent growth will last for several years."
At the beginning of the year PSA said it expected the Chinese market to maintain double-digit growth in 2011.
He later told guests at the DS5 ceremony that China was a "cornerstone" of its strategy to become more international, which it shares with other European carmakers facing stagnating sales closer to home.
Gregoire Olivier, chief executive of PSA's Asia operations, said that about 5 percent of Chinese people own a car compared with about 55 percent of Europeans, a disparity he said showed how much room there is for the Chinese market to grow.
Car ownership is not evenly spread in the country, with Beijing and Shanghai having to impose limits on car registrations even as smaller towns and cities with lower car ownership numbers emerge and carmakers rush in to scoop up sales.
"Smaller towns are getting into the market and carmakers are starting to be able to set up there," said Varin.
PSA will produce DS5s, the latest model in its DS range, in China with its new partner Changan Automobile, China's No.4 automaker and in Europe at its Sochaux factory in France.
The China facility will have an initial capacity of 200,000 units, Varin said.
PSA and Changan, the state parent of Chongqing Changan Automobile Co , signed a deal for a 50-50 manufacturing joint venture in July 2010, saying at the time the venture would have an initial investment of 8.4 billion yuan. [ID:nTOE66804B]
The partners are waiting for the final approval from the Chinese government, but today "everything suggests that the joint venture approval is following its normal course," Varin said.
PSA already has a long-standing joint venture in place with
China's No.3 carmaker, Dongfeng Motor , with which it
makes Peugeot 408 and Citroen C5 sedans. It is trailing General
Motors and Volkswagen
PSA plans to set up a dedicated network of DS dealerships in China to underscore the exclusivity of the range, which revives the name of the iconic Citroen DS of the 1950s-1970s, as the company seeks to tap into the growing premium market in China.
About 60 percent of the DS5's sales should come from Europe and the rest from China, Olivier said.
As required by Chinese legislation, PSA and Changan will also launch a dedicated brand as part of their joint venture, starting with commercial vehicles and passenger vehicles to follow two to three years later.
Olivier said the new brand could be launched within a year.
"China is objective No.1 for the brand, but we can't rule out exporting it," he added. (Editing by Matt Driskill)