Nokia has a crisis on its hands as vendors in China, its biggest market, are facing a huge pile-up of inventory and have refused to place new orders, Caixin Century reported Monday.

"Our (sales) channels collapsed in the second quarter because of the inventory overhang," said a mid-level sales manager with Nokia China. Nothing like this has ever happened before, said the manager, who refused to be identified.

Based on the latest data from market research firm IDC, Apple Inc. has surpassed Nokia to become the world's largest smartphone maker. In the second quarter of this year, Apple claimed a 19.1 percent market share. It was followed by Samsung, with a 16.2-percent share, and Nokia, with a 15.7-percent share.

Nokia's handset shipments in China fell to 11.3 million in the second quarter, less than half its first quarter number and down 41 percent from a year before. The Finnish phone maker’s plunge in the China market, combined with a 30 percent drop in European sales, fueled a 20 percent drop in global sales.

Nokia CEO Stephen Elop acknowledged challenges in both its European and Chinese market in a teleconference after the second quarter earnings release. He said Nokia had taken steps to address the inventory problems of Chinese vendors.