The war in Iran is beginning to weigh on China’s economy, with car sales plunging, toy factories shutting down, and thousands of workers taking to the streets following a surge in plastic and energy prices.
The sharp rise in oil and natural gas prices triggered by the conflict is starting to strain China’s economy, deepening the slowdown in private consumption and key export sectors. Although China benefits from large strategic energy reserves and significant investment in renewable energy, recent signs suggest that even the world’s second-largest economy is not immune to the global shock, according to a report in The New York Times.
For weeks, it appeared that China was managing the fallout from the war, supported in part by relatively stable economic data through March. However, as the fighting drags on, cracks are beginning to emerge.
One of the clearest indicators is the automotive sector, often seen as an early barometer of economic health. Retail car sales in China fell by 26% in the first 19 days of April compared to the same period last year, according to the China Passenger Car Association. Some of the decline is attributed to weaker demand for electric vehicles after tax incentives expired in December, but the drop in gasoline-powered vehicle sales was even steeper, approaching 40%.
China is less exposed than some of its Asian neighbors to rising energy prices
The decline in demand has left dealership lots filled with unsold vehicles and has led to reduced production. Chinese auto plants produced 27% fewer cars in the first two weeks of April compared to the same period last year, even as exports continue to rise.
According to Alicia García-Herrero, chief economist for Asia-Pacific at the French financial firm Natixis, “the economy is slowing.” She warned that China may struggle to meet its annual growth target of 4.5% or higher.
Meanwhile, industrial profit data released on Monday showed continued strength through March, but much of the increase was driven by a one-time windfall for chemical and energy companies. These firms benefited from rising oil and gas prices after stockpiling resources at lower costs before the war, The New York Times reported.
China is less exposed than some of its Asian neighbors to rising energy prices, thanks in part to its strategic oil reserves and large refining capacity. In addition, authorities have shielded consumers from the full impact of price increases, allowing state-owned oil companies to pass on only about half of the rise in oil prices.
However, the situation in the toy industry is far more severe. In southern China, thousands of workers staged protests last week after factories abruptly shut down on April 20. The workers, who lost their jobs, demanded unpaid wages and compensation. The closures followed a sharp increase in plastic prices, derived from oil and natural gas, amid disruptions to shipping through the Strait of Hormuz, a critical maritime route connecting the Persian Gulf to global energy markets.
The shuttered factories are located in the city of Yulin, a low-wage manufacturing hub about 260 miles from Hong Kong. Workers hung banners on factory gates with slogans such as: “Return my blood and sweat money.” Videos circulating on Chinese social media show protesters standing quietly while police in blue uniforms and high-visibility vests monitor the scene.
The factories belong to Hong Kong-based Wah Shing Toys. The company did not respond to requests for comment from The New York Times. In a notice distributed by its subsidiary in Yulin to employees, and quickly shared online, the company said it was shutting down operations and filing for bankruptcy due to difficult conditions in overseas markets. The statement cited “worsening trade friction between China and the United States in recent years,” along with a challenging international business environment and unpaid debts from foreign clients that have hurt cash flow.
