A new report from McKinsey & Company (link opens in PDF) estimates that sales of premium cars in China will surpass U.S. sales by 2020.

Concurrent with China's economic boom, luxury-car sales have increased at an annualized rate of 36% in the past decade, while passenger-vehicle sales have improved an average 26% per year. In 2012, the Chinese bought 1.25 million premium vehicles, second only to the Americans' 1.7 million purchases.

The consulting firm expects that annual sales will reach 3.0 million in China by 2020, compared with just 2.3 million in the United States. This estimate is a result of a reduced 12% annualized increase for the next eight years but still represents the fastest sales growth of any country.

In a 1,200-person consumer survey, McKinsey found that "reflection of social status" and "self-indulgence" served as primary reasons for premium upgrades.

In what may prove a troubling sign for international luxury-car manufacturers such as Tata Motors (NYSE:TTM), maker of Jaguar and Land Rover, 66% percent of respondents believe that a Chinese automaker will produce internationally recognized luxury cars within 10 years. When asked if they would choose a Chinese premium car, 41% responded affirmatively.