BEIJING, Aug. 8 -- China's auto sales and output both shrunk in July with domestic brands facing increased competition from foreign counterparts, new data showed Friday.

Some 1.6 million cars were sold in China last month, a year-on-year rise of 6.7 percent, while output increased 8.6 percent to 1.7 million units, the China Association of Automobile Manufacturers (CAAM) said in a report.

But compared with the previous month, volume was down 7.3 percent and 12.3 percent, respectively, according to CAAM. They attributed the slowdown to falling demands for commercial vehicles.

Foreign brands remained in a dominant position as they expanded their offerings to offer more lower-end products, a segment once dominated by domestic brands.

In the first seven months, Chinese-brand passenger cars accounted for merely 34.6 percent of the market share, while domestic sedans took a 17.7-percent share.

"Domestic brands are in a very critical period," CAAM secretary-general Dong Yang said.

On the back of rapid urbanization and rising incomes, China has cemented its position as the world's largest auto market in recent years, but local companies have so far failed to ride the tide of success due to scattered resources that led to several players but few big-name brands.

To regulate the industry and foster stronger domestic brands, the government has been trying to push mergers and acquisitions to better integrate resources.