Rising oil and natural gas prices caused by the war in Iran are beginning to weigh on China’s economy, further slowing already anemic consumer spending and hurting key export sectors.
Car sales fell in March and plunged again in April. Restaurants and hotels are seeing fewer customers as households become cautious. In southern China, thousands of toy factory workers protested last week after their employers collapsed due to rising plastic prices and U.S. tariffs.
The emerging signs of tension underscore how even China, with vast strategic oil reserves and massive investments in renewable energy, is not immune to the forces pressuring global economies.
For many weeks, China appeared to be weathering the consequences of war, a view reinforced by fairly strong economic data through March. But as the war enters its ninth week with no clear end, cracks are beginning to appear.
“The economy is slowing,” said Alicia García-Herrero, chief Asia-Pacific economist at Natixis, a French financial firm. China may struggle to meet its growth target of 4.5 percent or more this year, she added.
One of the clearest signs of emerging weakness is in auto sales and production, often seen as early indicators of trouble. Cars are the second-largest purchase for many Chinese households after apartments, and the industry is driving demand for steel, glass and other materials.
Retail car sales in China plunged 26 percent in the first 19 days of April from a year earlier, according to the China Passenger Car Association. Although part of that decline reflects lower sales of electric vehicles after tax incentives expired in December, gasoline-powered cars fared worse, falling nearly 40 percent.
Declining sales have left dealerships full of unsold cars, triggering production cuts. China’s auto factories made 27% fewer cars in the first two weeks of April compared with a year earlier, a sharp decline even as exports rise.
At first glance, the economy still appears resilient. But a closer look reveals an underlying weakness.
This month, China said its economy grew by an annualized 5.3% in the first three months of this year. But most of the strength occurred in January and February.
Retail sales slowed in March, increasing only 1.7% from a year ago. The China Logistics and Purchasing Federation said stocks of unsold goods continued to pile up. Michael Pettis, an economist at Peking University, said rising inventories could dampen future growth.
Industrial profits data on Monday showed continued strength through March, providing a possible buffer against a slowdown. But much of that gain came as chemical and energy companies took advantage of a one-time windfall from rising oil and gas prices after building up low-cost stocks before the war.
China’s strategic oil reserves and its immense refineries make it much less exposed than its Asian neighbors. China has also shielded consumers from the shock of rising fuel prices, allowing its state-controlled oil companies to pass on only half of any increase in oil prices.
The picture is bleaker in the toy industry.
Thousands of workers who lost their jobs took to the streets last week in southern China, staging daily protests to demand back wages and compensation from several toy factories that abruptly closed on April 20.
The closures come as prices for plastic, made from oil and natural gas, have risen after traffic slowed in the Strait of Hormuz, the waterway linking the Persian Gulf to energy buyers around the world. China’s toy industry was already under pressure due to rising costs, foreign competition and tariffs imposed by President Trump.
The shuttered factories are in the city of Yulin, a low-wage toy manufacturing hub about 260 miles west of Hong Kong.
Workers displayed banners at factory gates with slogans such as “Return the money of my blood and sweat.” In the videos, protesters mill about quietly while police in blue uniforms and reflective vests stand nearby.
Many short videos of the protests have circulated online in China. While public unrest protests are typically censored, these clips have remained, perhaps because the protests are peaceful and Beijing has urged companies to uphold their obligations to workers.
Repeated calls Friday and Monday to government and Communist Party offices in Yulin city went unanswered. The closed factories are owned by Hong Kong-based Wah Shing Toys, which did not respond to phone calls or an email for comment.
The company’s Yulin subsidiary issued a statement to workers that quickly spread online, saying it was closing factories and filing for bankruptcy due to harsh conditions overseas. The statement cited “escalating trade frictions between China and the United States in recent years” and a difficult overseas business environment, noting that unpaid invoices from overseas customers had hurt its cash flow.
Soaring plastic prices have become a problem for China’s toy industry, including another group of manufacturers in Shantou, a city 300 kilometers northeast of Hong Kong, which produces a third of the world’s toys.
Ten days after the war began, on February 28, the Shantou Chenghai Toy Association warned of “hoarding and panic” as plastic prices soared.
Murphy Zhao And Ruoxin Zhang contributed to reports and research.
