China's year-on-year auto sales fell in May for the second straight month, data showed Thursday, in a clear sign that red-hot growth in China is cooling.

Sales in China -- the world's biggest auto market -- fell 3.98 percent from a year earlier to 1.38 million units last month, the China Association of Automobile Manufacturers (CAAM) said in a statement.

April sales dipped 0.25 percent, marking the first year-on-year decline since January 2009, when the nation's vehicle sales dropped 14.35 percent year on year to 735,500 units due to the impact of the global financial crisis.

Sales growth began slowing in mid-2010 when the government started withdrawing incentives aimed at cushioning the impact of the worldwide economic downturn.

Authorities have raised purchase taxes on small passenger cars to 10 percent starting this year, ending a measure that helped the nation overtake the United States as the world's top auto market in 2009.

In the January to May period, sales rose 4.06 percent to 7.9 million units, the data showed.

Passenger vehicle sales fell 0.11 percent year-on-year in May to 1.04 million units, but rose 6.14 percent to 6.03 million in the five months to May.

CAAM secretary general Dong Yang said cash subsidies for some small-engine cars would not be scrapped soon, Dow Jones Newswires reported.

Currently selected vehicles with engines of 1.6 litres or smaller attract a 3,000 yuan ($463) subsidy.

CAAM has appealed to the government not to implement policies that would harm sales, Dong told a news conference. Some Chinese cities have tightened regulations on car purchases since the end of 2010.

He said auto sales growth in 2011 would likely be lower than CAAM's original forecast of 10-15 percent and manufacturers would adjust production plans in response to the sales decline, which could trigger job losses.

"I believe they will also adjust their longer term production plans," Dong said.

In an apparent move to spur sales, China this year will offer subsidies of 11,000-18,000 yuan for old farm vehicles, buses and heavy trucks heading to the scrap heap, the finance and commerce ministries said this week.

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