China’s export earnings and financial reserves offer protection against the Middle East energy crisis. For manufacturers facing higher costs and reluctant customers, the adjustment is harder. The pressure falls unevenly across an industrial economy whose strongest performers obscure the difficulties elsewhere.
Chinese oil buyers arrived in Singapore with an urgent shopping list.
Nearly ten independent refiners sent traders to an industry gathering to seek replacement supplies, according to Reuters. Over recent weeks, independents bought more than 20 million barrels from alternative sources as access to Iranian and Russian cargoes tightened. Congo’s Djeno crude commanded a premium of about $22 a barrel over Brent for November delivery, partly reflecting freight costs. In June, it had traded at a discount.
Replacement supplies keep refineries operating. They can also bring longer journeys, higher transport bills and more expensive raw materials. Securing oil resolves the immediate supply problem; it does not settle who pays for the adjustment.
China has considerable resources to manage an external shock. Individual manufacturers have less room for manoeuvre. Export earnings offer little protection to a business that cannot raise its prices or collect its invoices promptly.
The divide behind the export boom
China’s goods exports reached RMB20.17 trillion in the first eight months of 2026, against imports of RMB14.61 trillion, according to official customs figures. The resulting RMB5.56 trillion surplus provides a substantial cushion against higher import costs. But trade values reveal little about how profits are distributed among the businesses generating them.
August’s official manufacturing survey exposes that divide. Its purchasing managers’ index stood at 50.6 for large enterprises, compared with 49.4 for medium enterprises and 47.9 for small ones. Readings above 50 indicate expansion from the previous month; those below it indicate contraction. Smaller firms remained under pressure even as their reading improved.
The profit figures are equally uneven. Across industrial enterprises covered by the official survey, profits rose 17.6% between January and July, while the aggregate profit margin improved to 5.66%. Electronics profits more than doubled and chemical manufacturers recorded a 56.6% increase.
Clothing manufacturers suffered a 17.2% profit decline. Furniture producers’ profits fell 58.2%, alongside an 8.6% drop in revenue. The survey covers businesses with annual revenue from their main activities of at least RMB20 million, leaving the smallest workshops outside the picture.
These figures do not establish that the Iran war caused the losses. Weak demand and competition also matter. They show that the energy shock is reaching businesses with very different capacities to absorb it.
Who absorbs the higher bill?
For a manufacturer, rising input costs become dangerous when customers refuse to pay more.
August’s official survey recorded a raw material purchase price index of 56.6, against a selling price index of 50.4. Price increases were more widespread among inputs than finished products. These readings measure survey responses, not the magnitude of price changes, so their difference cannot be treated as a measure of lost profit.
Nevertheless, the commercial problem is clear. A supplier with scarce capacity or a distinctive product may pass higher costs to customers. A business competing mainly on price may have to accept lower earnings, demand concessions from its suppliers or cut expenditure.
Cash flow can tighten before a business becomes unprofitable. A factory paying more for materials today may wait weeks for customers to settle their bills. Borrowing can bridge that gap, but it adds another expense.
If the pressure persists, investment and employment become vulnerable. The manufacturing employment index remained below the expansion threshold at 48.7 in August. That signals weakness, although it does not demonstrate an energy driven wave of redundancies.
Overseas demand presents a further risk. Customers facing higher fuel bills may resist price increases or postpone purchases. Exporters could then face rising costs and weakening orders together.
China’s defences limit the damage
Dearer crude does not translate directly into an equivalent increase in every factory’s electricity bill.
China’s power system relies heavily on coal, alongside renewable and nuclear generation. Coal supplied 55% of electricity in 2025, according to the International Energy Agency. This gives electricity users some insulation from imported oil disruption.
The more direct exposure lies in petroleum used as fuel or feedstock, and in transport and logistics. A plastics producer and a machine shop therefore face different risks. Treating manufacturing as a single energy consumer obscures where the damage is most likely to occur.
China also held approximately $3.438 trillion in foreign exchange reserves at the end of August. Combined with substantial export earnings, those reserves provide protection against external financing pressure. They cannot restore the profitability of every struggling manufacturer.
Claims that the conflict was deliberately engineered to force China into a currency crisis remain unproved. China’s capital controls and influence over offshore renminbi liquidity also give Beijing alternatives to sharply raising domestic interest rates. The more credible danger is a prolonged adjustment in which weaker businesses absorb a disproportionate share of the cost.
Beijing’s difficult choices
Beijing is extending support. Measures announced in August expanded loan interest subsidies and raised the eligible loan ceiling for micro, small and medium enterprises from RMB50 million to RMB75 million, according to a government announcement.
Cheaper borrowing can help a viable manufacturer bridge a temporary disruption. It cannot create customers or indefinitely compensate for production costs that exceed what buyers will pay.
Policy must therefore distinguish between businesses facing temporary financial pressure and those whose commercial prospects have deteriorated more fundamentally. Withdrawing support too quickly risks losing firms capable of recovering. Maintaining it indefinitely can sustain excess capacity and prolong damaging price competition.
The evidence so far shows national financial resilience alongside weakness in parts of industry. Overall profits have improved. Smaller manufacturers remain under pressure. Both facts belong in the assessment.
China has the resources to compete for available oil. The harder test comes after it arrives: whether manufacturers can recover the higher cost from customers before they postpone another investment, shorten another shift or stop accepting orders that no longer pay.