Just a few years ago, the Chinese auto industry was a lucrative market, attracting investments from enterprises in other sectors.

But, in the last two years, the auto industry has been plagued by a cut throat price war, excessive production, and declining revenues. But experts say profits in the industry are now stabilizing and are actually becoming more rational. Lizi Hesling has the story.

Sales profit in the first five months of this year decreased to 4 percent from 9 percent compared to the same period of 2004. Though sales of domestically made cars increased nearly 5 percent, profits fell 69 percent.

Qie Xiaogang, Manager of Information Center of Yayuncun Auto Market, said: "There are several reasons why profits in auto industry are going down; including low entry costs for the industry, the opening up of the car market, as well as fierce competition."

China's auto industry combines a blend of high investments, high risks and high specialty. The market is crowded with 350 car brands, pushing the industry into an intense price war. Meanwhile, rising costs of raw materials and labor is also raising production costs for the industry. But experts say profit margins of the Chinese auto industry are becoming more in line with the average level in other countries.