The US and Israel’s war on Iran is expected to help China’s exporters gain global market share from rivals in countries hit harder by high energy prices and supply chain shocks, according to economists.
Chinese factories should be able to maintain steady production thanks to the country’s large oil reserves and domestic energy supplies, they said, while the war’s disruption to oil and gas markets could spur a longer term shift to green energy that would benefit Chinese industry.
“One could certainly see China take more market share globally as a result of the energy shock,” said Fred Neumann, chief Asia economist at HSBC.
Any boost to China’s export juggernaut will be alarming to European and south-east Asian producers, many of which were already struggling to maintain market share against competitively priced Chinese goods.
However, Neumann and other analysts cautioned that Chinese manufacturers’ performance would depend on the size of the war’s impact on global economic growth. “It’s still an open question whether end demand will hold up,” he said.
China has leaned heavily on exports in recent years to offset weakness in domestic demand that stems in large part from a deep slowdown in its property sector. After hitting a record $1.2tn trade surplus last year, Chinese exports surged nearly 22 per cent year on year in the first two months of 2026.
Beijing has also pushed investment towards higher-end, new energy sectors including electric vehicles and solar panels.
Capital Economics estimates China’s export growth in 2026 will hit 6 per cent, up from an estimate of 5 per cent prior to the war in Iran.
Julian Evans-Pritchard, head of China economics at Capital Economics, said the country was “quite well placed to gain global market export share”, adding that “energy costs are probably not going to rise as much as in other countries”.
Official data released on Tuesday showed China’s purchasing managers’ index was 50.4 in March, signalling an expansion of factory activity after two months of contraction. A reading above 50 shows an expansion in activity.
Economists at Citi said that, one month into the war, Chinese industry appeared to be weathering the crisis. Only about 6 per cent of China’s energy consumption depends on imports from the Gulf, insulating producers to a degree from the higher energy costs that their competitors are struggling to absorb.
“Barring a protracted full-fledged oil crisis, China’s supply-side resilience may even allow it to expand export market share — echoing the dynamic seen during the Covid shock in 2020,” Citi economist Xiangrong Yu said in a research note.
He added that “China’s long-term energy strategy — focused on investing in renewables, diversifying import sources, and building strategic reserves — leaves it better cushioned than industrial peers”.
China does source higher percentages of some more specialised industrial inputs from the region. More than half of its sulphur, for instance, is imported from the Middle East.
Exporters in China’s east-coast industrial heartlands have reported growing orders from foreign customers concerned about supply chain resilience in south-east Asia, where countries such as Vietnam, Thailand and Indonesia are heavily dependent on oil from the Middle East.
A manager at an exporter of product prototypes in Hangzhou in eastern Zhejiang province said that from late March there were signs of many US and European clients reversing “China plus one” strategies, under which they had relocated production, often to south-east Asia, to diversify away from China and avoid US tariffs.
“One client told me he is considering shifting some orders from Vietnam and Cambodia back to China,” said the manager, who declined to be named, adding that disruptions linked to the Iran war oil shock had affected Vietnamese economic activity and delivery timelines.
Huang, the chief executive of an electronic components manufacturer based in Ningbo, Zhejiang, also said inquiries from US customers had surged. “Demand has picked up sharply — now we need to get into detailed price negotiations,” said Huang, who asked to be identified only by his surname.
Huang added that he had been visiting suppliers to ensure they could meet delivery commitments if his company won new orders.
In the medium term, the crisis could also spur countries to accelerate adoption of renewable energy and electric vehicles — benefiting China, which is the leading supplier of green technology.
But Chinese manufacturers’ profit margins — already squeezed at home by more than three years of deflationary pressure — are not immune to price rises stemming from the energy shock, economists said.
The oil crisis is expected to create inflationary pressures that will partially offset deflation in China, but economists say these would stem from the “wrong” kind of price rise, driven by increasing costs rather than stronger end demand.
“Imported inflation will weigh on China’s economy,” Huang Yiping, a member of the People’s Bank of China Monetary Policy Committee and a professor at Peking University, told media in Beijing on Tuesday.
“That said, with inflation currently subdued, there is still some room to absorb these external pressures,” he added. “Much will depend on how long the Middle East conflict lasts and how severe it becomes.”
During previous periods of elevated oil prices, return on equity for listed Chinese companies was usually lower, Larry Hu, chief China economist at Macquarie, noted.
“Upstream sectors, such as energy producers, will benefit . . . but downstream sectors, such as consumer discretionary, may struggle as they can’t pass on higher input costs,” Hu wrote in a research note.
Li, a manager of a Wenzhou-based plastic maker who only wished to be identified by his surname, said the cost of some materials had surged, with flame retardants such as brominated polystyrene doubling or tripling in price.
“This March we are set for a record loss,” he said. “To survive now, we must weather the storm with our clients — we have to shoulder the cost together.”
Consumer demand in China could also take a hit. The government controls fuel prices and has protected consumers from the full impact of the oil shock, but last week announced the biggest increase in retail petrol and diesel prices on record.
Chinese social media users posted pictures of queues at petrol stations ahead of the price surge.
“Absolutely crazy! First time in my life to see the gas station running out of oil,” one Guangdong blogger posted on Xiaohongshu. “The fuel hasn’t arrived yet, but cars are already lined up all the way out of the street.”
A further retreat in domestic demand could lead Chinese producers to rely even more on overseas trade.
Hui Shan, chief China economist at Goldman Sachs, cautioned that while lower margins would incentivise Chinese producers to export more, the energy shock would reduce the flexibility of overseas markets to absorb their products.
“Chinese exports will still grow and gain market share, it’s just that with the Iran war, growth will be slower than it might have been,” she said.
Data visualisation by Haohsiang Ko in Hong Kong
