Average stockpiles at China's auto dealerships fell to a four-month low in July as carmakers shut their plants for summer maintenance, according to the state-backed industry association.

Inventory levels fell to the about 1.7 months of sales in July, from 1.98 months in June, Luo Lei, deputy secretary-general of the China Automobile Dealers Association said in Tianjin over the weekend. Average stockpiles may fall to 1.5 months of sales for the full year, Luo said.

China's biggest auto-dealer body has said that carmakers need to scale back their sales targets or sweeten incentives because the worsening glut of vehicles across the nation's dealerships is not sustainable. Rising stockpiles have prompted dealers to deepen discounts to meet sales targets set by automakers, according to Pang Da Automobile Trade Co.

"The industry isn't in a healthy status," Pang Da Chairman Pang Qinghua said at an auto forum in Tianjin. "Supply and demand is in serious imbalance."

Manufacturing unexpectedly shrank in China for the first time in nine months as new orders fell and output rose at a slower pace, signaling the slowdown in the world's second-biggest economy is deepening.

China, which surpassed the US as the world's largest market for new vehicles in 2009, faces potential overcapacity, Chen Bin, head of the industry coordination department at the National Development and Reform Commission, said at the forum.

The nation's top economic planner will promote "structure adjustment" and boost consolidation, Chen said.