View from London: Why the Iran war hurts China less than its rivals?

China is a force for stability and certainty. At times this can be a hard sell. But as the globe lurches from the lunacy of Donald Trump’s tariffs to the fallout from his attacks on Iran, Chinese officials are making their pitch to an audience that needs little persuading—and they know it. Business executives and diplomats who have recently met Chinese leaders report that they seem supremely confident, ‘The Economist’ stresses.

This has made for extreme claims about the impact of the Iran war on China’s economic standing. In the immediate aftermath of the bombing, some of Mr Trump’s boosters asserted that, along with his toppling of Nicolás Maduro in Venezuela, it was part of a plan to hurt China, by undermining its supposed allies and energy suppliers. The notion that it would be among the biggest losers of the war is glaringly wrong. But that does not mean the opposite — that China will be the big winner, as some now assert — is obviously right.

Relative harm

The war will hurt China’s economy, not help it, though the damage will be slighter than that inflicted on many of its neighbours and rivals. The country’s share of global exports, already extremely high, is likely to rise yet more. But the longer the war drags on, the higher the costs will mount. Officials do not relish deepening chaos in the Middle East.

The economic effects for the Asian giant span three categories: energy, exports and escalation risks. Each contains a heady mix of setbacks and opportunities.

The most direct consequence of the war has been an oil squeeze. But unlike other Asian oil importers, China has more cushioning. It gets about a third of its crude through the Strait of Hormuz, compared with more than 70% for both South Korea and Japan. Moreover, oil and natural gas are smaller parts of China’s overall energy mix owing to its reliance on coal, nuclear and rapidly growing renewables. China also has alternatives to petrochemicals, with big firms that can convert coal to chemicals. And if shortages get worse, China has oil reserves that are estimated at about four months of seaborne imports. Advisers in Beijing say the government is, for now, reluctant to tap these reserves, saving them for true worst-case scenarios.

Surveys of manufacturers already point to a sharp increase in raw material prices. Expensive oil is a painful way out of deflation — far better to be pulled out by strong demand than pushed by higher costs. Still, rising prices will at least reacquaint Chinese firms and consumers with the idea that prices can go up, helping prevent the “deflationary mindset” that condemned Japan to years of stagnation.

As one diplomat puts it, “confronting the Chinese manufacturing juggernaut has slipped down the list of priorities”

Another question is how the war in Iran will weigh on exports. Last year China notched up a record $1.2trn trade surplus, driving about a third of its economic growth. As consumers around the world feel the pinch from rising energy prices, their spending on other goods will fall, and the reverberations will hit Chinese factories. Economic advisers in Beijing talk about their preference for a stable global trading order. As the world’s largest exporter, China has a genuine stake in international waters remaining open and cross-border commerce remaining predictable.

Yet the current crisis could eventually boost global demand for China’s “new three” products: electric vehicles, lithium-ion batteries and solar cells. It is the dominant producer of all three, accounting for at least 70% of global capacity in these sectors. Each will be more alluring to people and businesses elsewhere if oil prices remain high in the coming months.

Chinese producers will also benefit if some of their target markets are distracted. Throughout 2025 it looked as if European countries were inching towards more protective measures against the wave of Chinese imports hitting their shores. Now, as one diplomat puts it, confronting the Chinese manufacturing juggernaut has slipped down the list of priorities….

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