Many analysts have predicted that the Iran War and the subsequent global energy shock would play a significant part in slowing Chinese economic growth in 2026. This is evident by China's large oil and gas imports through the Strait of Hormuz, similar to other Asian economies that all heavily depend on crude oil and natural gas imports.
However, so far, the Chinese economy has performed considerably well. Data released by the National Bureau of Statistics shows a 5 per cent year-on-year expansion in the first quarter of 2026, building momentum from last year's final quarter's 4.5 per cent growth.
The Chinese growth in the first period can be attributed to high-tech and advanced industrial sectors, as well as a surge of exports in January and February. China's industrial value grew 6.1 per cent year-on-year, and industrial revenue surged 15.2 per cent year-on-year to 1.02 trillion RMB or 149.5 billion USD. This strong momentum was driven by a 6.4 per cent year-on-year increase in manufacturing output.
Although China is the largest importer of oil globally, the Communist Party of China (CPC) has spent years building up defences against energy shocks. According to estimates, China has a strategic stockpile of 1.3 billion barrels of oil, enough to last months, and prior to the recent American blockade, Chinese tankers carrying oil still transited through the Strait.
Furthermore, China is not as dependent on crude oil and natural gas compared to other countries. In 2025, around 42 per cent of China's electricity consumption came from renewable sources, and 55 per cent came from coal. Natural gas only makes up 2.8 per cent, while oil is negligible. Additionally, China installed 446 gigawatts of renewable energy in 2025, more than the rest of the world combined, and in the latest Five-Year Plan, the main target is to reduce the amount of carbon emissions as the economy grows.
It is guaranteed to see China doubling down on renewable energy installations, further reducing the strain of fossil fuels in China's energy mix. China can also increase imports from Russia and increase domestic oil production to shore up portions of the economy in the short term, making China uniquely positioned among other countries to avoid a systemic economic shock.
A surprising economic and financial outcome of the Iran War is the boom in China's bond market and the appreciation of the Yuan (RMB). Foreign demand for Chinese bonds denominated in Yuan (RMB) has soared, with the trading volume doubling since October 2025 on the Hong Kong Stock Exchange (SEHK).
Chinese debt markets drew 2.5 billion USD of inflows in March, whereas debt from other emerging markets has recorded outflows of 16.7 billion USD. The Yuan has been the surprising outperformer of the Iran War compared to other global currencies. Dutch Bank, ING, has tracked the Yuan (and the Offshore Yuan found in the SEHK) as the only currency to have gained against the USD. Yields on China's 10-year bond have dipped marginally to 1.81 per cent, outperforming even U.S. Treasuries, which have increased to 4.34 per cent.
Global investors are betting will be relatively insulated given its structural advantages. A stronger Yuan gives the CPC more fiscal space as importing goods (such as oil) is cheaper, whereas other countries will experience higher prices when importing goods. Furthermore, as exports continue to drive the Chinese economy forward, the CPC can expect to rake in more revenue due to higher costs of Chinese exports.
Normally, this is a bad sign for traditional export-based economies, but Chinese exports are already extremely cheap, and thus, Chinese exports still remain competitive despite higher prices. Additionally, the Chinese supply chain, like the economy, remains resilient, and China can continue to export goods across the globe, whereas other export-based economies will suffer due to the economic impacts of the Iran War.
While China has avoided an acute energy shock, it has still experienced higher energy prices across the board, like the rest of the world. But this may be beneficial for the Chinese economy compared to other nations. China has been trapped in a deflationary cycle since 2023, but thanks to higher energy prices, producer inflation has ticked up by 0.5 per cent in March.
The largest factor dragging the growth of the Chinese economy is the lack of domestic consumption due to extremely low prices and stagnant wages. But an increase in inflation leads to higher prices and thus higher wages, creating more incentives for Chinese citizens to spend money.