Shoppers at an IKEA store in Beijing on July 11.
Photo: roman pilipey/ShutterstockBEIJING—China has become the first major economy to return to growth since the coronavirus started sweeping across the world earlier this year.
On Thursday, China said its economy grew 3.2% from a year earlier in the second quarter, as authorities benefited from an aggressive campaign to eradicate the virus within its borders.
In sequential terms, China’s second-quarter growth in gross domestic product represented a 11.5% rebound from the first three months of the year, according to data released by Beijing’s National Bureau of Statistics. For the entire first six months of the year, China’s economy contracted just 1.6% when compared with the first half of 2019.
The growth figure for the second quarter beat a median estimate from economists for 2.6% growth and was at the top end of an unusually wide range of forecasts, from a contraction of 3.1% to growth of 3.5%. It followed a historic 6.8% contraction in the first three months of the year, when Beijing shut down the country in late January as the coronavirus spread across China from the central city of Wuhan.
“The national economy overcame the adverse impact of the epidemic in the first half gradually and demonstrated a momentum of restorative growth and gradual recovery,” the statistics bureau said.
The second-quarter recovery followed a string of data points that suggested China’s economy had turned a corner. Manufacturing surveys have shown a steady recovery in sentiment over the past three months. And China said Tuesday that exports and imports had returned to growth in June for the first time since the outbreak.
The rebound came in a quarter when China appeared to bring the virus’s spread under control. In early April, it ended its 77-day lockdown of Wuhan, a city of 11 million. It responded forcefully to subsequent viral resurgences, including one that emerged in a wholesale market in Beijing last month, testing millions within weeks and restricting travel in and out of the capital. As of Wednesday, the country recorded 10 consecutive days without a case of local transmission.
The question now for Beijing policy makers is whether the rebound can sustain itself through the coming months with only the modest stimulus measures that have been put in place, particularly as the U.S. struggles to rein in record numbers of new coronavirus cases.
A prolonged recession in the U.S. would hurt demand for Chinese goods in their most important export market, while the persistence of new virus cases around the world could keep much of the global economy in a state of paralysis for months, weighing on growth prospects.
Separately, China has been dealing in recent weeks with its worst flooding in recent memory across large swaths of the country, including parts of its manufacturing and export heartland, which some economists worry could hamstring a recovery.
A man drives a scooter loaded with flowers at a market in Yunnan province on July 14.
Photo: Qilai Shen/Bloomberg NewsWith the second-quarter growth, China is looking more like a bright spot in a world ravaged by the pandemic. The International Monetary Fund expects China’s economy will grow 1.2% for the full year, which would make it the only large economy to report positive data in 2020.
Though the world will likely look to China to help power the global recovery, Beijing’s restraint on fiscal and monetary stimulus means it is unlikely to do as much heavy lifting as it did during the global downturn more than a decade ago.
China, in turn, is counting on the rest of the world to bounce back. Though exports are less important for China’s economy than they once were, they are still a significant driver, contributing about a fifth of overall growth.
In Hangzhou, a city about 100 miles southwest of Shanghai, one manufacturer of metal roll-forming machines that was founded in 2003 has weathered that year’s outbreak of severe acute respiratory syndrome, the global financial crisis and the coronavirus pandemic.
“This year is the worst,” said May Fu, sales manager at Hangzhou Zhongyuan Machinery Factory.
With the company’s clients—largely based in Africa and Latin America—struggling, “they cut their orders as the economic situation turned worse,” Ms. Fu said. Business at the factory hit a nadir in late March, with orders roughly 30% down from a year earlier, she said.
In the first half of July, however, the company has experienced a sharp rise in the number of inquiries and new orders—a 20% rise compared with the first half of June, Ms. Fu estimates.
“We’ve seen significant signs of improvement,” she said.
But Ms. Fu considers her company fortunate just to have survived. None of her 55 employees were laid off. The factory next door, which was already struggling with weak orders coming into the year, closed for good during the pandemic.
As conditions improve, Chinese policy makers’ caution on the stimulus front—born in part from concerns about exacerbating imbalances in the economy—has grown more evident.
In recent weeks, borrowing rates in China have stopped their descent as the central bank has started to worry again about financial speculation. Stocks have surged this month and on Thursday, statistics showed new home prices kept rising in June from the previous month in 61 of 70 cities tracked by officials, compared with 57 cities in May.
The yield on 10-year government bonds has risen by roughly half a percentage point since the beginning of May to roughly 3%. Yields fall when bond prices rise.
The first-quarter economic report, China’s first period of contraction in more than four decades, prompted senior Chinese leaders to make the rare move of ditching a formal growth target for the year, turning its focus instead to stabilizing the job market and ensuring social stability.
On Thursday, China reported that its urban surveyed jobless rate dropped to 5.7% in June, compared with 5.9% in May. China’s headline unemployment rate doesn’t factor in many migrant workers, tens of millions of people who lost their jobs during the first three months of the year.
Industrial production, meantime, rose 4.8% in June from a year earlier, in line with expectations and up from a 4.4% increase in May.
Fixed-asset investment dropped 3.1% in the first half of the year, improving from a 6.3% drop in the January-to-May period, which was better than the 3.2% decline expected by economists.
China’s retail sales fell 1.8% in June from a year earlier, compared with a 2.8% drop in May, falling short of economists’ projection for 0.3% growth.
Investment in commercial and residential real estate rose 1.9% in the first six months of the year from a year earlier, reversing a fall of 0.3% for the January-to-May period.
—Bingyan Wang, Grace Zhu, Liyan Qi and Xiao Xiao contributed to this article.
Write to Jonathan Cheng at jonathan.cheng@wsj.com
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