New report says Middle East war leaves China with 'clear economic and strategic advantages'

A report from the geopolitical consulting firm Asia Group, released on Tuesday (June 30), said that China is emerging as a winner from the conflict in the Middle East, though with some caveats if the global fuel crisis continues.

According to the analysis, titled No Safe Harbor: Asia’s continued exposure to disruptions in the Strait of Hormuz, Asia felt the effects from the conflict, which began on Feb 28 when the United States and Israel started bombing Iran, faster and more acutely than any other region, though the effects were not the same across different countries.

Nevertheless, it added that “China is emerging from the crisis with clear economic and strategic advantages.”

The crisis has revealed the country’s resilience, in large part due to the size of its reserves of gas and oil, as well as its diversified supply of energy. Because of these, China was able to absorb and cushion the global energy shock and underline its competitive edge across industries. At the same time, higher fuel prices have made the shift to clean-tech sectors, which China dominates, faster.

Moreover, the report pointed out that China has used the global crisis to portray itself “as the stable partner of choice” both geopolitically and economically.

And while China may also feel the effects of prolonged disruptions, its government has expressed confidence in its ability to handle pain points amid decreasing stockpiles and slow consumer demand. China has more shock absorbers than most countries because it is able to set prices and export controls, deploy subsidies, and manage its currency.

“Beijing sees the crisis as the ultimate validation of its industrial self-reliance strategy: it will double down on, not deviate from, the current Five-Year Plan,” the report added.

It warned, however, that if disruptions to the global fuel supply persist and is prolonged, Beijing will face a deeper risk as global growth slows and the demand for Chinese exports lowers.

While a memorandum of understanding signed between the United States and Iran outlining terms of peace was signed last month, the Strait of Hormuz remains only partially open, and the flow of energy is not yet back to normal.

Should energy prices remain elevated for the rest of the year, this will affect purchasing power across the globe as well as increase the possibility of a recession, the analysis added.

“The compounding effect would be to limit these markets’ ability to absorb Chinese exports, narrowing a key release valve for China’s export-driven economic model, which is already under pressure as the United States and Europe pursue trade barriers to counter Chinese overcapacity,” the report says. /TISG

Read also: An unknown projectile’ hits Singapore-flagged ship Ever Lovely while crossing Strait of Hormuz