China's August industrial output, retail sales growth beat expectations and EV sales grew. Deflationary pressure eased

China's factory output and retail sales grew at a faster pace in August, but tumbling investment in the property sector threatens to undercut a flurry of support steps that are showing signs of stabilising parts of the economy.

Bank lending figures were better than expected, narrowing in the declines of exports and imports as well as easing deflationary pressure.

Chinese policymakers are facing a daunting task in trying to revive growth following a brief post-Covid bounce in the wake of persistent weakness in the crucial property industry, a faltering currency and weak global demand for its manufactured goods.

Industrial output, released by the National Bureau of Statistics (NBS), rose 4.5% in August from a year earlier, accelerating from the 3.7% pace seen in July and beating expectations for a 3.9% increase in a Reuters poll of analysts. The growth marked the quickest pace since April.

Retail sales, a gauge of consumption, also increased at a faster 4.6% pace in August aided by the summer travel season, and was the quickest growth since May. That compared with a 2.5% increase in July, and an expected 3% increase.

The upbeat data suggest that a flurry of recent measures to shore up a faltering economy are starting to bear fruit.

This is good for the China EV sector.

Yet, a recovery is far from assured, analysts say, especially as confidence remains low in the embattled property sector and continues to be a major drag on growth.

Further aiding sentiment, separate commodities data showed China's primary aluminium output hit a record-monthly high in August while oil refinery throughput also rose to a record.

The data followed better-than-expected bank lending figures, narrowing in the declines of exports and imports as well as easing deflationary pressure.

The country's passenger vehicle sales also returned to growth in August from a year earlier, as deeper discounts and tax breaks for electric vehicles boosted consumer sentiment.

To sustain the recovery momentum, China's central bank said it would cut the amount of cash that banks must hold as reserves for the second time this year to boost liquidity.

Earlier in the day, the bank also rolled over maturing medium-term policy loans to inject more liquidity into the financial system.

But analysts say more fiscal and monetary policy steps are needed as an ailing property sector, high youth unemployment, uncertainty around household consumption and rising Sino-US tensions over trade, technology and geopolitics have raised the bar for a durable economic recovery in the near future.

"The reserve requirement ratio (RRR) cut yesterday sent an interesting signal that there is a sense of urgency to boost growth," said Zhiwei Zhang, chief economist of Pinpoint Asset Management, expecting more policies over the coming months to bolster overall demand.

The nationwide survey-based jobless rate improved a touch to 5.2% in August, slightly down from 5.3% in July.

"Beijing may have to introduce more aggressive property easing measures to deliver a real recovery," Nomura analysts said, echoing a consensus view among China observers.

"Beijing will likely once again have to play the role of borrower and spender of last resort."

"Perhaps the peak pessimism is behind us," said Ding Shuang, chief economist for greater China and North Asia at Standard Chartered Plc. "August's data indicates that the economy is unlikely to suffer from a persisting, deeper downturn going forward even though there might still be some volatility ahead - especially if we take into account the policy factor."

"Policy tailwinds, while no massive stimulus, are gathering momentum," said Redmond Wong, a market strategist at Saxo Capital Markets in Hong Kong. "We are calling for a rally in the equity market."

The industrial figures were aided by a pickup in production of automobiles, which gained 4.5% in August after a decline the month before. Spending on jewelry and cosmetics also improved, contributing to the higher-than-expected data for retail sales growth.

"We also need to see that there are still a lot of uncertainties and instabilities externally, and domestic demand still appears insufficient," the NBS said in a statement accompanying the data.

More likely stimulus may include additional policy rate cuts and other monetary easing to support the economy and ensure it can eventually turn a corner.