BEIJING - Despite being the world's largest auto market, China has yet to build a strong domestic car industry, as imported vehicles and joint-stock brands still account for the lion's share of the market.

Domestic automakers produced 84 of the 120 models that have made their debut at the ongoing 12th Beijing International Automotive Exhibition. However, despite a massive local presence, the domestic car industry is steadily losing market share.

Chinese-branded passenger car sales fell 8.1 percent from the previous year to 1.62 million vehicles during the first quarter of 2012.

Domestic automakers' market share has dropped to 42.9 percent, down 3.2 percentage points year-on-year, according to data from the China Association of Automobile Manufacturers (CAAM).

"Domestic auto companies have placed greater attention on research and development in recent years. Some have established their own research centers. But their input is still far from enough," said Dong Yang, secretary-general of CAAM.

China's auto sales in the first quarter declined 3.4 percent and passenger car sales fell 1.25 percent in comparison to the same period in 2011 with the slowing of the economy and the end of government subsidies for auto purchases.

However, foreign automakers and their joint ventures with Chinese partners managed to report robust sales during the period. Toyota sold 211,500 vehicles in the first quarter, up 1.8 percent from one year earlier.

BMW saw its sales soar 37 percent year-on-year to 80,014 units, while Audi's sales grew by a stunning 41 percent from January to March.

Foreign and Chinese makers used to go after different swaths of consumers. Global car makers have targeted wealthy customers, while domestic producers, including BYD Co, Great Wall Automobile Co and Zhejiang Geely Holding Group Co, have catered to more frugal consumers.

"In a bid to woo more Chinese consumers, global automakers have not only introduced glitzier and sportier models to maintain their leading position in the luxury auto sector, but also penetrated the lower end of the market, which has traditionally been dominated by homegrown brands," said Jia Xinguang, an auto industry analyst.

Domestic auto makers are coming under renewed pressure as global auto companies cut prices, launch cheaper models and increasingly adapt their cars for the Chinese market to lure consumers.

Trumpchi, the Guangzhou Automobile Industry Group's flagship sedan, went on sale in late 2010 and was priced at 180,000 yuan ($28,571), 40,000 to 50,000 yuan cheaper than its major rivals, the Honda Accord and Toyota Camry.

However, Trumpchi lost its cost advantage after the prices of the Camry and Accord fell sharply to 150,000 yuan and 170,000 yuan, respectively, last year. Trumpchi dealers had to offer discounts in order to maximize sales.

Luxury sedans have also become increasingly affordable. The price of BMW 3 Series vehicles plunged 19 percent in 2011, while Mercedes dealers have sold C-class Elegance models at 20 percent less than the suggested retail price.

Meanwhile, Nissan and Kia have offered sedans for around 100,000 yuan, further squeezing profit margins for small domestic companies.

Analysts said the loss of market share for domestically developed vehicles is also a result of their relatively poor brand images. Foreign-branded autos are regarded as more reliable and more impressive than domestic brands.

"The first wave of car buyers wants better products and brands as they replace their first cars. But homegrown brands can't meet their demands," Jia Xinguang said.

Banning official fleet purchases of foreign vehicles will provide a small boost for local automakers' market share, as such purchases only account for a limited proportion of total sales.

Domestic auto companies still have to improve their product quality and strengthen innovation in order to compete with global carmakers and regain market share, analysts said.