China's industrial output grew the fastest in five months in August as demand for products from coal to cars rebounded thanks to higher government spending and a year-long credit and property boom.

China's steel industry, in particular, has perked up in recent months as capacity cuts and production curbs have boosted prices and profits, while a government infrastructure spree and housing boom have spurred demand for building materials from steel to cement.

Improvements in August, while only slight, suggest China's third-quarter economic growth is holding up better than expected just a few months ago and likely remains within the government's 2016 target range of 6.5-7%, despite an alarming drop in private investment which is leaving the economy more dependant on government spending.

"In general, today's activity data are in line with the (upbeat) trade data and inflation figures released last week," Commerzbank economist Zhou Hao wrote in a note.

"It is a good time for China to deliver on structural reform, especially on the SOE side, to restore confidence in China's economy," he said, referring to a long-promised overhaul of the country's often bloated and inefficient state-owned enterprises.

Industrial output rose 6.3% in August from a year earlier, the National Bureau of Statistics said, surprising analysts who had expected it to pick up only slightly to 6.1%.

China's biggest listed steelmaker, Baoshan Iron & Steel said earlier it has raised its prices for October. 

Retail sales also handily beat expectations, with growth accelerating to 10.6% from 10.2% the previous month. Analysts had forecast an increase of 10.3%.

Car sales in particular have been strong in China this year, hitting a 3-1/2 year high in August as buyers rushed to get new wheels before a tax cut expires at year-end. 

Fixed asset investment was unchanged at 8.1% over the first eight months of the year, marginally better than expected.

Still, the rate of growth in investment remained the slowest since December 1999, and details showed a growing imbalance between public and private spending that raised questions about China's longer-term growth prospects.

Highlighting Beijing's increasing reliance on government spending to drive the economy, investment by state firms surged 21.4% in the first eight months of the year, though the pace did ease slightly from 21.8% in January-July.

China's fiscal spending rose 12.7% in January-August from the same period last year, and was up 10.3% in August alone. 

Property remained a bright spot, however, despite fears that a near one-year-long housing boom may be peaking.

Property investment rose 6.2%i n August from a year ago, according to Reuters calculations, compared with 1.4% in July. Real estate investment directly affects about 40 other business sectors in China.

"A property investment rebound means it will continue to contribute positively to gross domestic product this year, albeit probably not as significantly as seen in the first half," said Ma Xiaoping, an economist at HSBC.

Low level of private investment remains a worry

Private investment grew just 2.1% over the first eight months of the year, the same pace as in January-July and remaining at record lows.

However, on a monthly basis, private firms boosted spending 2.3%, reversing a two-month slide.

Chinese policymakers have focused on improving conditions for the private sector this year, including calling for better access to credit and fair market access. But private firms still complain of unfair competition with state firms and restricted market access, especially in key parts of the services sector.

Trade data last week showed stronger domestic demand as imports rose for the first time in nearly two years, while exports fell less than expected.

While economic activity in China has cooled this year, it appears less at risk of a hard landing than feared in 2015.

The broader economy remains relatively stable, albeit sluggish, despite continued weakness in the massive export sector and overcapacity plaguing many industries.

However, analysts say China may face a renewed slowdown as previous policy support fades and the government holds off on further easing over concerns of rising debt and housing bubbles.

"We think that momentum behind the economy will fade in 2017, when the property market will be on a downward cycle and the automotive sector likely to be facing overcapacity issues," Tom Rafferty, Asia Economist at the Economist Intelligence Unit, said in a note.