Leaders in the world's second-largest economy are attempting to make domestic consumption a main driver of growth as the once-booming property sector remains mired in a debt crisis.

In a clear sign of the hurdles, top policymakers announced China's lowest annual growth target in decades at a key political gathering this month.

But in a positive start to 2026, figures from the National Bureau of Statistics (NBS) on Monday showed retail sales grew 2.8 percent on-year in January and February combined.

The figure topped a forecast of 2.5 percent in a Bloomberg survey of economists.

China's authorities typically combine data for the first two months of the year to account for distortions caused by the varying Lunar New Year holiday, which normally sees a boost in activity.

The retail sales growth was the largest since October but fell short of the jumps recorded during the same months in past years, including four percent in 2025.

Industrial production rose 6.3 percent in January-February, the NBS data showed, up from 5.2 percent in December and better than the 5.3 percent forecast in the Bloomberg survey.

And fixed asset investment leapt back into positive territory, rising 1.8 percent during the same period, the NBS said.

"China's activity data suggest that growth accelerated at the start of the year, driven by both strong exports and a pickup in domestic demand," wrote Zhichun Huang of Capital Economics.

However, the annual budget released at this month's political gathering suggests "fiscal policy will provide less of an impulse to the economy in 2026 compared to 2025", Huang wrote.

That "will likely weigh on growth later in the year", she added.

The country's surveyed unemployment rate crept up to 5.3 percent during the first two months, the NBS said, the highest since the same figure was recorded in August.

- Trade frictions -

China reported record exports last year, offering a crucial lifeline as domestic activity slumped.

And they surged even faster to start off this year, official data showed last week.

"The export boom helped to boost industrial production," wrote Zhiwei Zhang, president of Pinpoint Asset Management, noting that Monday's figures were "better than expected".

However, turmoil in the Middle East could change the outlook for the economy, Zhang warned.

"I expect the policymakers in China to watch the development closely and respond through fiscal policy if necessary," he wrote.

Analytics firm Kpler said China imports around half its seaborne crude from the Middle East, where traffic in the Strait of Hormuz is currently paralysed by the US-Israeli war with Iran.

Observers say its massive oil reserves will allow China to weather disruption in the short term, though prolonged blockages could present major challenges.

Chinese President Xi Jinping and US counterpart Donald Trump are due to hold a high-stakes summit in Beijing.

The White House has said the meeting will run from March 31 to April 2, though China has not confirmed the plans, in line with usual practice.

The trade relationship between the world's two largest economies has been tested since Trump's return to the White House last year, with Washington launching a fierce tariff war that has since reached a shaky truce.

Top Chinese and US economic officials met for trade talks in Paris on Sunday, in a gathering widely seen as setting the stage for the Xi-Trump summit.

However, the US president said in an interview with the Financial Times published Monday that he "may delay" the potential meeting as he turns his attention to the Iran war.