Chinese Car Sales Rise at Fastest Rate in More Than Two Years

Retail passenger-car sales in the country increased by 8.9% last month from a year earlier to 1.7 million vehicles, the China Passenger Car Association said Tuesday, marking the strongest rate of growth since May 2018.

It represented the second straight month in which sales outpaced those of the same month last year. Car sales to individual customers had declined by 3.4% in the April-to-June period compared with a year earlier before bouncing back in July with a year-on-year increase of 7.7%.

With sales on a positive trajectory again, the CPCA now expects that retail car sales for the full year will fall short of last year’s totals by just 6% to 8%, said Cui Dongshu, the CPCA’s secretary-general.

For the current month, he expects the continued closure of China’s borders—which has forced Chinese citizens to remain close to home—to boost domestic travel and car sales.

China’s auto market is hoping to sustain the momentum through the end of the year, following two painful years of contracting sales volumes. It is looking to a broader recovery in economic activity and consumer confidence after the pandemic was largely brought under control at home, though auto dealerships’ inventory levels remain far above comfort levels.

Dealerships continued to lean on discounts and special promotions to draw down inventory, according to the China Automobile Dealers Association, which tracks car sellers’ backlogs.

Auto makers have also eased off on car production in response to market conditions, Mr. Cui said, pointing to a 0.2% decline in production volume in August compared with a year earlier.

Lu Junkai, a

Volkswagen AG

dealer in the inland provincial capital of Changsha, offered discounts on more models and turned to live-streaming advertising campaigns last month in hopes of juicing sales.

“We were just able to catch our breath,” Mr. Lu said, noting that sales grew by roughly 10% in August from the previous month as more consumers visited his outlet.

CPCA data showed that German and U.S. brands gained market share in August, as Japanese cars contracted.

Nissan Motor Co.

said last week its sales in China fell 2.4% in August compared with a year earlier.

Auto makers’ sales of passenger cars to dealerships grew by 7% in August, the CPCA said.

The government-backed China Association of Automobile Manufacturers, meantime, estimated last week that wholesale auto sales rose 11.3% in August from a year earlier to 2.18 million vehicles, driven by strong performance in commercial vehicles. CAAM will release actual sales figures Thursday.

Wholesale sales of new-energy vehicles, a category that includes electric cars, surged 43.7% last month from a year earlier to more than 10,000 vehicles, the CPCA said. The group didn’t report retail figures of electric cars.

Tesla Inc.

in particular sold 11,811 China-made Model 3s in the country in August, a 7% increase from July, according to CPCA data.

The Chinese government is leaning on electric vehicles to drive new demand for the auto market more broadly, offering subsidies and pledging to build more charging facilities. Beijing expanded a campaign to encourage sales of electric cars in small towns and villages last week, involving more than 50 models produced by Chinese car makers.

However, the CPCA remains cautious about the immediate impact of the policies, after widespread flooding across the country in July and August damaged houses and crops, hurting the incomes of many households, mainly in rural areas.

U.S.-listed Chinese electric car maker

NIO Inc.

last month launched a battery-leasing service that allows consumers to buy an electric vehicle without having to own the battery pack, thereby cutting the price of the vehicle by as much as 20%.

—Raffaele Huang contributed to this article.

Write to Jonathan Cheng at jonathan.cheng@wsj.com