Persian Gulf Troubles Creating Economic Problems for China

Commentary

China’s impressive oil reserves seem to have buffered much of its economy from the fuel shortages caused by the fighting in the Persian Gulf. The country seems to be weathering the pressures better than other economies in Asia and Europe. Indeed, rising fuel prices have in some cases improved profitability in an economy otherwise suffering deflationary pressures.

But behind the headlines and Beijing’s confident pronouncements, some statistical evidence and anecdotes suggest that China is not as well insulated as it appears to be on the surface.

Most telling is the sudden and dramatic drop in auto sales. According to the China Passenger Car Association, sales of all passenger cars—gasoline-powered and electric vehicles—fell by some 26 percent in the first half of April from levels at this time last year. Factories have understandably cut back, producing 27 percent fewer vehicles of all kinds in the first half of April than during the same period in 2025.

Other Chinese retailers have also noticed a decline in activity. According to Beijing’s National Bureau of Statistics, overall retail sales, including autos, rose in March, the most recent period for which figures are available, a mere 1.7 percent above year-ago levels, a sharp break from the relatively strong performance recorded in the January–February period.

Restaurants and hotels report seeing less traffic and many fewer customers in recent weeks, although no reliable data are available yet. None of this could, of course, have anything to do with the fighting in the Persian Gulf or the price and cost increases it has imposed, but the timing of this weakness certainly suggests that these events have played a role, likely a major one.

Pointing most directly to the trouble in the Middle East are the factory shutdowns reported from southern China. Because oil prices have soared from some $60 a barrel before the fighting to more than $100 at the time of writing, and because plastic is made from oil, China’s still significant toy industry has suffered and, in some cases, has ceased to be profitable.

By the end of April, several manufacturers had closed down and laid off thousands of workers. In Yulin, the low-wage toy-manufacturing hub about 250 miles west of Hong Kong, these layoffs have led to street protests from thousands of now idle workers. Hanging banners across locked factory gates, these protesters are demanding back pay and consideration by the factory owners as well as the government.

So far, local officials, Beijing, and the Chinese Communist Party have not commented. Given that protests of this sort are frowned on by the authorities, it is remarkable that public videos of these protests have appeared with a police presence but no action against the dissatisfied workers.

All this trouble might reverse suddenly if the problems in the Persian Gulf are resolved quickly, oil flows again, and its price falls. The prospects for such a pleasant turn of events are, of course, unknowable. Even if China can substitute Russian supplies for the loss of oil from the Middle East, the price will likely remain high, and that is more of a concern in this matter than are actual supplies.

So for the time being, it looks like China and the authorities in Beijing will face economic burdens on top of those already beleaguering the country—lackluster consumer demand, uncertain export prospects, and, of course, the depressing effect of the property crisis. It is not a picture of strength as Chinese leader Xi Jinping prepares to meet U.S. President Donald Trump.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.