China's economic growth is picking up momentum, but the investment-led recovery is unlikely to be sustainable in the long-term, Capital Economics Chief Asia Economist Mark Williams said.

Capital Economics noted that the strong growth in overall credit would sustain strong investment spending in the short term, though with the potential risk of worsening the economy's structural problems.

Latest data showed that industrial production increased at a faster annual rate of 10.4 percent in August than 9.7 percent in July, hitting the highest level since March 2012. The upturn was driven mainly by a 9.5 percent growth in output in state-owned firms.

At the same time, the heavy industry recorded a 15.6 percent gain in production, and a pick-up in energy-intensive industrial sectors pushed electricity output growth to the fastest since June 2011.

Separate data on Tuesday showed that China's retail sales grew at a faster year-on-year rate of 13.4 percent in August than 13.2 percent in July.

The real estate sector performed poorly in August, with property starts falling sharply from last year despite an improvement in sentiment among developers on the back of property price rises and a loosening of policy restrictions.

According to the economist, a further possible slowdown in construction activity would remove a key prop to economic growth.

RTTNews