Trade credit insurance specialist Coface says China has so far avoided major supply disruption linked to ongoing tensions in the Middle East, although mounting energy costs are creating fresh pressure across the country’s industrial sector.
In a new analysis, Coface states that China is in a stronger position than many other Asian economies to withstand prolonged instability in the region. While 35% of China’s oil imports pass through the Strait of Hormuz, the company says the immediate risk of physical shortages remains relatively low.
Coface attributes this resilience to China’s domestic energy structure, which continues to rely heavily on coal. Oil and gas together account for 39% of the country’s final energy consumption, significantly below the global average of 62%.
The company also highlights China’s large strategic oil reserves, which it says could cover close to 100 days of net imports if supply routes were temporarily disrupted.
Despite stable supply flows, Coface says the financial impact of higher energy and chemical prices is becoming increasingly visible throughout the economy. China recorded a 0.5% year-on-year rise in producer prices in March, marking the first annual increase in more than three years. According to Coface, the petrochemical industry was one of the main drivers behind the rise.
The company says much of the additional cost burden is currently being absorbed by businesses operating further down the supply chain, as consumer demand remains weak. Consumer inflation has stayed comparatively restrained, supported by fuel price controls, growing electric vehicle adoption and government support for state-owned refiners.
Coface warns that higher operating costs are beginning to squeeze profit margins, particularly in sectors such as textiles, chemicals and synthetic fibres, where some manufacturers have already reduced production levels. The company adds that stricter regulation and higher compliance expenses are increasing the pressure on firms.
According to Coface, smaller businesses are likely to face the greatest challenges because they have less ability to transfer rising costs to customers. Larger corporations are viewed as being in a more stable position due to stronger finances, economies of scale and long-term supply agreements.
Coface also suggests that the current situation may improve China’s competitive position against other Asian economies, including India and several ASEAN countries, which are more exposed to energy price volatility. The company says the crisis is also accelerating international demand for Chinese green technologies, including electric vehicles, battery systems and solar energy products.
However, Coface cautions that a prolonged conflict and sustained increases in energy prices could weaken global economic activity. The company estimates that if energy prices were to double compared with pre-war levels, global growth could fall by more than 1% in 2026, reducing demand for Chinese exports.
Junyu Tan, Economist for North Asia at Coface, commented: “China is currently managing to avoid a major supply shock thanks to its energy mix and industrial ecosystem. But the sustained rise in costs is creating a new vulnerability: that of margins, particularly for the most exposed companies and those least able to pass on price increases.”
