After the military strikes by the United States and Israel on Iran, Iran blocked the Strait of Hormuz, causing a global energy supply crisis. This has led to a significant slowdown in China’s export growth in March compared to the previous months, reflecting the increasing pressure on the Chinese economy due to the Iran conflict.
On Tuesday, April 14th, China’s General Administration of Customs released data showing that China’s exports in March grew by only 2.5% year-on-year. Bloomberg surveys of economists indicated that the median expectation was 8.6%, while the growth rate in February was close to 40%.
In contrast, import growth hit its fastest pace since the end of 2021, increasing by nearly 28%, with a trade surplus of 51 billion US dollars, the lowest level in over a year. China’s exports to the United States plummeted by over 26% in March, showing a downward trend again after a double-digit decline at the end of February.
In March, China’s natural gas imports dropped by 10.7% year-on-year, the lowest level since October 2022; crude oil imports decreased by 2.8%, and Chinese vessels were also affected by the blockade of the strait.
After the outbreak of the war, Iran blocked the Strait of Hormuz, leading to a rise in costs for various raw materials from plastics to fibers. This vital energy transport route being severed means about one-fifth of the world’s oil and liquefied natural gas is transported through this passage.
Even China, which has long been criticized by trading partners for subsidies and low-cost production, is not immune to the impact of rising fuel and transportation costs on buyers’ purchasing power. Many consumer-facing factories in China are experiencing squeezed profits.
The Strait of Hormuz is a vital passage for goods from Yiwu to the Middle East, and the month-long conflict in the Middle East has nearly halted this crucial waterway.
According to Agence France-Presse (AFP) citing the latest data from the market service company Kepler, from March 1st to 4:00 pm on the 23rd, the number of commercial ships passing through the Strait of Hormuz was only 144 times, a 95% decrease from before the conflict erupted on February 28th.
Although there is currently no precise statistical data on the extent of the impact of the trade through the Strait of Hormuz in the Middle East region, local business groups in Yiwu estimate that 30% of goods sold here are purchased from the Middle East.
CBC reported that outside Yiwu, businessman Li Tenghui’s warehouse is filled with kitchen furniture originally destined for Lebanon, but he cannot ship these goods due to soaring freight costs.
In addition to these boxes, there are also large machinery parts that should have been shipped to Iraq. Furthermore, there are hundreds of boxes of glassware originally meant for Saudi Arabia.
Li Tenghui said all these goods are piling up because importers either cannot afford the shipping costs or are concerned about the vessels carrying the goods being attacked en route.
“Our customers from the Middle East have no plans to place new orders,” he said.
The war in Iran has also pushed up oil-related costs, leading to a significant increase in the price of plastic in southern China, squeezing profit margins, disrupting logistics, and causing panic buying throughout the supply chain in Zhangmutou, Dongguan, China’s largest plastic trading center.
Li Tenghui also mentioned that the soaring oil prices have raised the price of goods in Yiwu. “The raw material prices for plastic products have risen by 40%. This will have a significant impact on the prices of the entire product and supply chain,” Li said.
China’s factory activity data for March indicates that China is increasingly relying on exports to offset weak domestic demand. However, the Iran conflict has caused a significant increase in commodity prices, raising input costs and putting pressure on the market.
Meanwhile, other trading partners, such as the European Union, are facing issues like high costs, high inflation, and currency appreciation, while China continues to report trade surpluses, exacerbating tensions in EU-China trade relations.