China Surprises With Strong Start to Year as Factories Power Expansion

That was a faster pace than the 5.2% year-over-year growth rate that the country notched up in the final quarter of 2023, and in line with the government’s official growth target of around 5% for the year.

China’s economy last year recorded one of its weakest growth rates in decades, outside of the turbulent years of the pandemic, as a hoped-for consumption boom following Beijing’s abandonment of its strict Covid-19 controls petered out after only a few months.

Real estate, which once accounted for as much as one quarter of economic output, was a major drag on growth as housing sales and construction tumbled.

To revive economic growth, Chinese officials are steering activity and investment toward manufacturing and exports to compensate for domestic consumers’ restraint and the property market crunch, neither of which shows signs of abating.

Beijing’s top priorities are sectors such as electric vehicles and renewable energy equipment—industries it counts among the “new productive forces” that it intends to harness to dominate a growing chunk of global manufacturing.

Data suggests the strategy is working. Economists at Goldman Sachs, Morgan Stanley and the Asian Development Bank last week nudged up their forecasts for economic growth in China after better-than-expected industrial data. All three institutions now expect growth to be close to the government’s official target of around 5% for the full year.

But Beijing’s strategy is raising hackles around the world as governments balk at the risk to jobs and industries from a new wave of cut-price Chinese competition, a potential rerun of the “China shock” of the early 2000s.

The U.S. and Europe are pushing back against Chinese electric vehicles, solar panels and wind turbines. Emerging economies are feeling the heat from China’s manufacturing glut, too, with Brazil, India and Mexico among those countries investigating whether Chinese products such as steel and ceramics are being dumped on to their markets at unfairly low prices.

China says its companies are competing fairly and has criticized such moves as protectionism. The International Monetary Fund and others warn that these mounting tensions over trade between countries could lead to a fracturing of the global economy, with blocs of countries allied around the U.S. and China, respectively, and broader trade impeded.

Tuesday’s data captured the fruits of Beijing’s strategy, with industrial production rising 6.1% from a year earlier in the first quarter. Meanwhile, retail sales, a key gauge of domestic consumption, increased by a more modest 4.7% in the first three months of the year.

Sheng Laiyun, deputy head of China’s statistics bureau, credited an acceleration in industrial production, buoyed by improving exports and government support measures, with helping economic growth surprise to the upside in the first quarter.

Exports in the first quarter rose 1.5% compared with the same period a year earlier when measured in U.S. dollar terms, though by more than 4% by volume as prices for Chinese goods fell on global markets.

In the case of both industrial production and retail sales, however, most of the heavy lifting was done in the first two months of the year. March, in contrast, showed a considerable loss of momentum—a warning sign for the remainder of the year.

For the month of March, industrial production rose just 4.5% from a year earlier, much lower than the 7.0% rise in the first two months of the year. Retail sales also slowed, rising just 3.1% on the year.

Louise Loo, lead China economist at Oxford Economics in Singapore, said she expects economic growth in China to slow in the second quarter following the weakness in the March data.

Meanwhile, China’s headline rate of joblessness, the surveyed urban unemployment rate, edged down to 5.2%, from February’s 5.3%.

When it comes to China’s sprawling property market, arguably the economy’s biggest risk, Tuesday’s data release offered a mixed picture.

While indicators such as new home sales and home prices continued to fall in March in both month-over-month and year-over-year terms, the magnitude of those declines generally narrowed.

On the other hand, property investment fell 9.5% in the January-March period from a year earlier, widening from a 9.0% drop in the first two months of the year.

Grace Zhu and Xiao Xiao in Beijing contributed to this article.

Write to Jason Douglas at jason.douglas@wsj.com