The 6.1% rise in first-quarter gross domestic product -- roughly in line with economists' expectations -- was lower than the 6.8% expansion in the fourth quarter of 2008, and marks a significant slowdown from past growth that hit 13% for the full year of 2007. With exports declining and companies sharply cutting inventories this year, quarterly growth has already fallen below the lows reached during the Asian financial crisis. So China's current slump is easily its worst since the downturn of 1989-1990, when the economy grew by only about 4% a year.

Yet some indicators continued to pick up in March, as the government's drive to boost investment took hold. "There have been some positive changes, and the result is better than expected. But the foundation is not yet solid and the task ahead is still arduous," said Li Xiaochao, spokesman for the National Bureau of Statistics, as he announced the figures in Beijing.

He said China faces challenges both internationally, from a world economy that is still in recession, and domestically, from the need to maintain jobs and incomes for its vast population. But Mr. Li also cited improvements in key indicators as reasons for confidence.

Fixed-asset investment in urban areas, China's benchmark measure of capital spending, rose 30.3% in March from a year earlier, picking up from 26.5% growth in the first two months of this year -- an indication that stimulus projects are coming online. And industrial production, the main driver of China's manufacturing-heavy economy, grew by 8.3% in March from a year earlier, accelerating from the 3.8% gain in January and February.

The world's third-largest economy is being closely watched by investors for signs it will recover before crisis-stricken Western nations. Demand from China could provide support to export-dependent Asian nations such as Singapore and Japan, whose economies are contracting sharply. Producers of iron ore, copper and oil, from Australia to Latin America to the Middle East, are looking to China's stimulus program, worth four trillion yuan or around $585 billion, to drive commodities demand.

Breaking down the GDP figures relative to the previous quarter -- which is how most developed economies report their economic data -- provides more evidence of improvement. China's 6.1% figure for the first quarter of 2009, because it is a comparison only with the year-earlier period, doesn't clearly show how the economy is doing relative to the onset of the crisis late last year. Many economists think economic growth probably accelerated in the first quarter from the last quarter of 2008, a change that wouldn't be captured in that headline figure.

Private-sector estimates varied, but were generally in the range of a 5% to 7% increase in first quarter GDP on an annualized, seasonally adjusted comparison with the previous quarter, versus much weaker growth of around 1% to 2% in the fourth quarter. The statistics bureau's Mr. Li said bureau officials are working on their own such calculations but are unlikely to publish them until next year.

The stimulus has been supported by consumer spending that has been surprisingly resilient during the global downturn. Car sales hit a monthly record in March, and home purchases and air travel both have been rising this year after sharp falls last year. In March, retail sales rose 14.7% from a year earlier, down only slightly from a 15.2% rise in January and February.

Still, concerns about deflation and excess capacity in manufacturing persist as prices continue to fall. China's consumer price index for March fell 1.2% from a year earlier, the statistics agency said, after a drop of 1.6% in February and a 1.0% gain in January.

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Even if China's first-quarter gross domestic product figures were the worst in nearly two decades, a volley of new data published on Thursday indicated that heavy government spending has already pulled the economy out of the worst part of the downturn.

On the back of a surge in bank loans to government-mandated infrastructure projects, fixed-asset investment rose sharply in March compared with the year before, while growth in industrial production also accelerated last month. Electricity consumption, which slumped in recent months, has also stabilised.

Although GDP growth of 6.1% in the first three months of 2009 from a year earlier was the lowest since the government began publishing quarterly figures in 1992, economists said the result represented an upturn.

Using quarter-on-quarter comparisons, Goldman Sachs and JPMorgan both estimated growth rebounded sharply to 5.8% on a seasonally adjusted basis, up from 2.2% in the fourth quarter of last year. China does not publish quarter-on-quarter comparisons which are widely used in developed countries.

Yet while there are increasing signs that the economy has bottomed out, there are still large questions about the shape of the eventual recovery. Economists say underlying demand in many parts of the economy remains depressed.

The pump priming of the economy using bank loans and infrastructure investment is seen in Beijing as a necessary step to cushion the sharp slowdown, but in private officials say it is unlikely the government can maintain such elevated bank lending throughout the year.

There are also concerns about the inflationary consequences of the lending boom. Indeed, if there is one thing that scares the Chinese government more than falling growth it is high inflation, which was a key factor in the unrest that led to the June 4 1989 massacre of pro-democracy students who began demonstrating in Beijing 20 years ago Friday.

At the moment China is facing the opposite dilemma - figures released on Thursday showed consumer prices falling 0.6% in the first quarter and 1.2% in March from a year earlier. But government officials are privately concerned about the potential for destabilising inflation in the medium term as a consequence of the huge amounts of money being pumped into the economy to boost growth.

Chinese banks extended Rmb4,581bn ($670bn, €509bn, £450bn) of new loans in the first quarter, well over the total increase in outstanding loans for the whole of last year and close to the government's 2009 full-year target of Rmb5,000bn.

As well as fears of eventual inflation, regulators are worried the rush to lend by the banks will lead to lax risk management and mounting credit risks that will eventually yield a huge crop of bad loans. Regulators have already launched investigations to try to stop bank loans flowing illegally into the stock market.

The central bank has reiterated its "moderately loose" monetary policy stance, sublimating its fear of inflation in light of the fragility of the rebound and the government's need to fill the gap left by collapsing exports and private sector investment.

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Property prices in China are likely to halve over the next two years, a top government researcher has predicted in a powerful signal that the country's economic downturn faces further challenges despite recent positive data.

The property market, along with exports, were leading drivers of the booming Chinese economy over the past decade and the slumps in both have taken a heavy toll.

Cao Jianhai, professor at the Chinese Academy of Social Sciences, a leading government think tank, said an apparent rebound in the property market was unsustainable over the medium term and being driven by a flood of liquidity and fraudulent activity rather than real demand.

He told the Financial Times he expected average urban residential property prices to fall by 40 to 50% over the next two years from their levels at the end of 2008.

"Prices may not fall in the near term but I expect a collapse starting next year, followed by many years of stagnation," said Mr Cao, known as one of the "three swordsmen" of the real estate market because of his influence as an official economist.

Average urban housing prices across 70 cities in China fell 1.3% from a year earlier in March but were up 0.2% from February, according to figures released on Monday by the National Bureau of Statistics.

That broke seven months of sequential declines and was accompanied by a rebound in transaction volumes.

Residential property sales rose 8.7% from a year earlier in the first quarter in terms of floor space sold, compared with a fall of 20.3% for the whole of 2008.

Real estate agents in the residential property bellwether of Shanghai said the market seemed to have bottomed out as a result of government stimulus measures, falling prices and pent-up demand from owner-occupiers.

But Mr Cao said preliminary government investigations had turned up numerous examples of real estate developers using fake mortgages to offload apartments on to the books of state-run banks facing enormous pressure from Beijing to rapidly increase lending to boost the economy.

Sales are also being driven by real pent-up demand from urban citizens, but Mr Cao said many were jumping into a false rebound because they had never seen house prices drop before.

Before widespread privatisation of real estate began in the late1990s, most city dwellers were allotted housing by their work unit or by the state. The first private home mortgages since the 1949 communist revolution were granted barely a decade ago by state-owned banks.

At a national level, average housing prices tripled between 2003 and the peak in mid-2008 and are now 10 to 12 times average income, which means 60% of homebuyers' monthly income must go to mortgage repayments, Mr Cao said.

The volume of empty apartments across the country hit 91m sq metres at the end of last year, up 32.3% from a year earlier, according to official figures.

Those numbers included neither the huge volumes of completed real estate projects whose owners are waiting for market conditions to improve before they put them on the market, nor the estimated 587m sq m or apartments sold in the past five years but left empty by their owners.

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With China showing tentative signs of an economic rebound, the theory that the world's recently crowned third-largest economy could detach itself from the US economy - an idea that looked foolish during the autumn global slump - is being dusted off again.

But for China to really "decouple" from the global slowdown, it will need to demonstrate that its growth is not dependent on exports.

Economists have long argued about the role of exports, which represent about 40% of China's gross domestic product, in the country's spectacular expansion.

The performance of the economy this year, including Thursday's release of first-quarter GDP figures, will help answer that question.

The issue is a crucial one. China's economy is expected to rebound later this year, boosted by aggressive government policies. But whether China can go back to its long-term trend of 8-9% annual growth or whether it is facing a period of relatively sluggish expansion will depend to a large extent on just how important exports really are.

One school of thought has it that the bulk of growth in recent years has been driven by domestic demand rather than exports.

Although China's headline export figures are huge, some researchers believe this greatly exaggerates the importance of the sector. The reason is that many of China's export factories only assemble parts that were manufactured elsewhere.

One of the most striking examples is Apple's iPod. A revealing research paper published last year by economists from the University of California at Berkeley and Irvine mapped the economic value-added from making iPods. Although the product leaves a Chinese factory with a price of $150, they estimated that only around 5% of that value is actually created in China because key components are imported. Moreover, Chinese workers only receive around 2% of the wages paid during the product's manufacture.

The relatively low exposure to exports, some researchers argue, is why China was only moderately affected by the bursting of the global technology bubble in 2001-02.

The most recent attempt to calculate the importance of exports provided some dramatic conclusions. Li Cui and two colleagues at the Hong Kong Monetary Authority used data from provincial governments to try to calculate the "spill-over effects" from exports on to investment in factories, jobs and consumption.

They found that exports were responsible for a large chunk of job growth and investment in recent years. They concluded that for every 10 percentage-point decline in export growth, GDP growth would fall by 2.5 percentage points.

Given that exports have gone from expanding at 20% in the third quarter of 2008 to declining by 20% so far this year, this is a highly pessimistic conclusion. The economic impact of weak exports was "much larger than what would have been expected if only the direct impact of exports is considered", they said.

The other reason for concern about China's external position is that the country is still running a huge current account surplus - near to 8% of GDP. Despite the crisis, the first-quarter surplus was higher than last year's.

In the short run, this will actually help headline growth because there will be a contribution from net exports. However, with the trade deficit in the US and other countries shrinking, some economists fear China could yet face a wrenching adjustment in its external accounts.