What does Iran war mean for China’s export machine?

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 percent 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 percent

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