Rising oil and natural gas prices due to the war in Iran are beginning to weigh on the Chinese economy, further slowing already anemic consumer spending and hurting critical export sectors.
Auto sales fell in March and plummeted further 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 employer collapsed due to rising plastic costs and U.S. tariffs.
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 economies around the world.
For many weeks, China appeared to weather the consequences of the war, a view reinforced by fairly strong economic data through March. But with the war in its ninth week without a 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 could struggle to meet this year’s growth target of 4.5 percent or more, he added.
One of the clearest signs of emerging weakness is in auto sales and production, often considered early indicators of trouble. Cars are the second most important purchase for many Chinese households after apartments, and the industry drives demand for steel, glass and other materials.
Retail automobile sales in China fell 26 percent in the first 19 days of April from a year earlier, according to the China Passenger Car Association. While some of the decline reflects weaker sales of electric vehicles after tax incentives expired in December, gasoline cars fared worse, falling nearly 40 percent.
Falling sales have left dealerships full of unsold cars, leading to production cuts. Chinese auto factories made 27 percent fewer cars in the first two weeks of April than a year earlier, a sharp decline even as exports rise.
At first glance, the economy still appears resilient. But a closer look suggests an underlying weakness.
This month, China said its economy grew at an annualized rate of 5.3 percent during the first three months of this year. But most of the force was in January and February.
Retail sales slowed in March, rising just 1.7 percent from a year earlier. The China Federation of Logistics and Purchasing said inventories of unsold goods continued to rise. Michael Pettis, an economist at Peking University, said rising inventories could slow future growth.
On Monday, industrial earnings data showed continued strength through March, offering a potential buffer against a slowdown. But much of that profit came from chemical and energy companies that cashed in on a windfall from rising oil and gas prices after building up cheap reserves before the war.
China’s strategic oil reserves and huge refineries leave it far less exposed than its Asian neighbors. China has also shielded consumers from the full brunt of rising fuel costs, allowing its state-controlled oil companies to pass on only half of any increase in oil prices.
The outlook 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 came as costs of plastic, which is made from oil and natural gas, rose after traffic slowed through the Strait of Hormuz, the waterway that connects the Persian Gulf to energy buyers around the world. China’s toy industry was already under pressure from rising costs, foreign competition and President Trump’s tariffs.
The closed factories are in the city of Yulin, a low-wage toy manufacturing center about 260 miles west of Hong Kong.
Workers placed banners on factory gates with slogans such as: “Give me back my blood and sweat money.” In the videos, protesters move silently while police officers in blue uniforms and reflective vests remain nearby.
In China, numerous short videos of the protests have circulated on the Internet. While demonstrations of public unrest are often censored, these clips have been preserved, possibly because the protests are peaceful and Beijing has urged companies to live up to their obligations to workers.
Repeated calls on Friday and Monday to the government and Communist Party offices in the city of Yulin went unanswered. The closed factories belong to Hong Kong-based Wah Shing Toys, which did not respond to phone calls and an email seeking comment.
The company’s Yulin subsidiary issued a statement to workers that quickly spread online, saying it would close factories and file for bankruptcy due to harsh conditions abroad. The statement cited “increasing trade friction between China and the United States in recent years” and a challenging business environment abroad, and noted that unpaid invoices from foreign clients had hit its cash flow.
Rising plastic prices have become a problem for China’s toy industry, including another group of manufacturers in Shantou, a city 190 miles 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 with reports and investigations.
