Translation:The industrial sector in China grows.
I think that should be also acceptable, but "to grow" fits pretty well. (To increase is also translated as "aumentar")
Yes, and others sentences at Duolingo, "increases" was translate how "crescer".... so is this...
I wouldn't say it's wrong necessarily, but grows is a much better choice here. It's usually used for abstract things like economies and industries. Increase is used more with a specific rate or quantity (the value of the dollar increased, car sales increased).