In May, 1.0 million passenger vehicles were sold, up 25.8 percent on an annual basis, according to statistics released by China Association of Automobile Manufacturers (CAAM). 

This is the slowest growth rate over the last five months, and it represents a 6.1 percent drop from April's sales – the second consecutive sales decline on a month-to-month basis.

However, CAAM noted that automakers' inventories are not yet ballooning. Vehicle inventories – which do not include automakers' vehicles at retail outlets – totaled 321,400 units at the end of May. That's 22,300 fewer units than at the end of April.

For the first five months of 2009, China's passenger car sales surged 55 percent year-on-year to 5.7 million units. Year-to-year comparisons are somewhat misleading because sales bottomed out early in 2009 during the worst of the recession.

In January 2009, the Chinese government halved the purchase tax to 5 percent for vehicles with engine displacement of 1.6 liters or less. In March, auto sales started picking up and maintained strong growth for the rest of 2009.

This year, CAAM predicts sales of passenger and commercial vehicles will slow a bit after the government raised the sales tax on small cars to 7.5 percent from 5 percent in January.

Monthly passenger vehicle sales, in thousands.

Source: CAAM

Note: February sales were weak due to the Chinese New Year holiday that month.