Tehran [Iran], March 24: As the Iran war fuels global fears of stagflation, a debate is intensifying over whether the crisis poses an immediate risk to China's sources of external demand or a strategic opening for its exporters.
Mirroring the supply chain upheavals of the pandemic era, the crisis has prompted new questions about whether China will be able to leverage its industrial base and supply-side resilience if a prolonged conflict further fractures global supply chains.
"China's economy looks strong on the surface but is structurally fragile underneath," cautioned Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at Natixis.
"If the oil shock tips the global economy into a severe downturn, export orders collapse. Chinese factories slow. Jobs are lost . a global recession would hurt China as much as anyone, and possibly more in some areas." At a media briefing last week, the International Monetary Fund said that every 10 per cent increase in oil prices - if sustained through the year - could trigger a 40-basis-point rise in global headline inflation and a 0.1 to 0.2 per cent contraction in global output.
Citing that estimate, Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered, said a prolonged conflict would inevitably suppress demand for Chinese exports.
However, Xu Tianchen, senior economist at the Economist Intelligence Unit, said the war was "a plus" for China's exports in the short term, and "the key is how long the war will last".
He said China possessed adequate oil reserves for domestic consumption and its supply chains remained relatively intact, while a fossil fuel crisis could also encourage exports of its "new three" renewable energy solutions - electric vehicles, lithium-ion batteries and solar photovoltaic cells - in the same way the Ukraine war had done.
"The obvious risk is the war becoming endless - let's say beyond six months," Xu said. "In this event, global demand will no doubt shrink, and on the supply side, Chinese factories will ultimately feel the oil strain."
As the Iran war fuels global fears of stagflation, a debate is intensifying over whether the crisis poses an immediate risk to China's sources of external demand or a strategic opening for its exporters.
Mirroring the supply chain upheavals of the pandemic era, the crisis has prompted new questions about whether China will be able to leverage its industrial base and supply-side resilience if a prolonged conflict further fractures global supply chains.
"China's economy looks strong on the surface but is structurally fragile underneath," cautioned Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at Natixis.
"If the oil shock tips the global economy into a severe downturn, export orders collapse. Chinese factories slow. Jobs are lost . a global recession would hurt China as much as anyone, and possibly more in some areas." At a media briefing last week, the International Monetary Fund said that every 10 per cent increase in oil prices - if sustained through the year - could trigger a 40-basis-point rise in global headline inflation and a 0.1 to 0.2 per cent contraction in global output.
However, Xu Tianchen, senior economist at the Economist Intelligence Unit, said the war was "a plus" for China's exports in the short term, and "the key is how long the war will last".
He said China possessed adequate oil reserves for domestic consumption and its supply chains remained relatively intact, while a fossil fuel crisis could also encourage exports of its "new three" renewable energy solutions - electric vehicles, lithium-ion batteries and solar photovoltaic cells - in the same way the Ukraine war had done.
"The obvious risk is the war becoming endlesslet's say beyond six months," Xu said. "In this event, global demand will no doubt shrink, and on the supply side, Chinese factories will ultimately feel the oil strain."
Source: Qatar Tribune
