Sales began softening this year after the central government eliminated various incentives in December. Now, various municipalities are emulating tough restrictions on car purchases enacted by Beijing's municipal government.

The latest to do so is Guiyang, the capital of southwest China's Guizhou Province, which on July 11 imposed a new policy to restrict car purchases to ease gridlock.

Auto executives are watching sales closely to see whether the market is suffering temporary softness or a genuine downturn. The car association said Tuesday that it expects sales to rebound in coming months.

"The month-on-month decrease was in line with our expectations, mainly because of the hot weather and a new-car restriction policy in Guiyang," said Rao Da, secretary-general of the association.

In July, sales of sedans gained 6.6 percent on an annual basis while those of multi-purpose vehicles rose 11.5 percent. Sales of SUVs -- perhaps China's hottest model segment -- jumped 15.2 percent.

Microvans were the only model segment to report a drop in sales, with a 19 percent decline.