China's automobile sales surged 30.45 percent year on year to 7.18 million units in the first half of the year, keeping the country the world's largest auto market, a Chinese research organization said in a report released Monday.

On a month-on-month basis, though, auto sales dropped 5.25 percent in June, even as on a year-on-year basis June auto sales advanced 13.97 percent, according to statistics disclosed by the China Automotive Technology & Research Center (CATRC).

China's auto sales dropped for three straight months beginning April after reaching at a record high of 1.7 million in March, according to CATRC.

Auto production, meanwhile, jumped 44.37 percent year on year to 8.47 million units in the first half.

June auto production dipped 1.41 percent month on month to 1.29 million but rose 12.4 percent year on year.

Zhao Hang, director of the CATRC, said the automobile inventory cycle stretched to 55 days in June, from 41 days in February.

"This was a negative for auto makers and dealers," Zhao said. "Even as auto inventory remains within normal levels, it has reached the upper limit of a reasonable stockpile, and this should arouse the attention of domestic auto makers."

Zhao predicted third quarter auto sales will remain weak on a monthly basis as the effect of a policy incentives gradually abate.

A rebound is likely in the fourth quarter, though, as people will wait until the last minute to buy a car before incentive measures like tax cuts and subsidies expire, he said.

The Chinese government decided last month to extend an auto replacement subsidy program by six months until Dec. 31 this year. The subsidy aims to help get highly polluting vehicles off the road and to stimulate automobile consumption.

Under the program, consumers who trade-in their used small- and medium-sized trucks and some mid-sized passenger vehicles for a new one receive a subsidy from 3,000 (about 441 U.S. dollars) to 6,000 yuan.

By the end of May, the Chinese government had handed-out 1.7 billion yuan in subsidies for 127,000 vehicles trade-ins.

The subsidy program has boosted domestic automobile spending by 15 billion yuan, according to Ministry of Commerce data