Volkswagen's auto sales in China fell 6 percent in 2004 and will fare little better in 2005 amid a raging price war and worsening demand from a slowing economy, executives for its two ventures in the country said on Tuesday.

Volkswagen, which counts China as its largest market outside Germany, lagged by far a nationwide market that had been expected to grow 10 to 15 percent in 2004, analysts said.

The German giant fell short of predictions of a slight rise in sales. Its lackluster performance points to diminishing market share as Japanese players from Toyota to Nissan move in on its turf, Reuters reported.

"Volkswagen is losing its market share" rapidly, said Henry Wu, an analyst at UBS. "Both Volkswagen's ventures in China are not doing very well, but Japanese companies are growing their market share very strongly."

Global auto makers are investing over US$13 billion in China to triple annual production to about six million cars by 2010.

But executives and analysts say demand may not begin to recover until the second half of 2005 at the earliest as customers look forward to more price cuts and greater ease of imports in 2005.

"Momentum has only been single-digit growth in recent months. Without more price cuts, we will not likely see double-digit growth again," said Wu.

Volkswagen AG's two main ventures in China -- in Shanghai and Changchun -- sold about 655,000 units in 2004, after surging 36 percent to 698,000 units in 2003, executives told Reuters.