China weathers energy turmoil pressure

China’s growth outlook is holding firmer than many major economies even as war-driven energy volatility and geopolitical strains darken the global picture, with Qatar National Bank arguing that structural features in the world’s second-largest economy are helping cushion the blow.

That assessment broadly aligns with the latest data and forecasts. Beijing has set a 2026 growth target of 4.5% to 5%, below last year’s pace but still signalling confidence that the economy can absorb weaker external demand, higher energy costs and persistent domestic strains. The IMF projects China’s economy will expand by 4.5% this year, while the OECD has said growth could remain at 4.4% in 2026 even as the wider global outlook deteriorates under the weight of the Middle East conflict and supply disruptions.

The case for resilience rests partly on the nature of China’s energy system and policy toolkit. Authorities moved this month to cap the pass-through from soaring international crude prices into domestic fuel costs, softening the hit to households and businesses after oil markets were shaken by conflict linked to Iran and threats to shipping through the Strait of Hormuz. That intervention does not erase the burden of higher import costs, but it shows how Beijing is using administrative controls to contain inflation and preserve stability at a time when many economies have fewer levers to pull.

China’s dependence on imported oil remains a vulnerability, yet it is entering this period with a broader energy base than in earlier decades. Analysts have pointed to the country’s heavy use of coal, rapid electrification, expansion in renewables and dominance across large parts of the clean-energy supply chain as factors that reduce its sensitivity to oil shocks relative to more oil-intensive economies. That does not make China immune, but it does help explain why some forecasters believe the country can ride out a spike in energy prices with less damage than export-dependent peers facing the same external storm.

Economic readings from the opening two months of the year have given policymakers some breathing space. Official figures showed industrial output rose 6.3% year on year in January and February, retail sales increased 2.8%, and fixed-asset investment edged up 1.8%, all beating expectations in a sign that activity entered 2026 on steadier footing than many analysts had feared. Reuters described that run of data as stronger than expected, suggesting that fiscal support and targeted stimulus were helping stabilise momentum before the latest energy shock began feeding more fully through the system.

Still, the picture is far from uniformly strong. China’s official purchasing managers’ indices have stayed soft, with manufacturing at 49.0 in February and non-manufacturing at 49.5, both below the 50-point mark that separates expansion from contraction. Those readings reflected holiday distortions as well as weaker orders, but they also underlined how fragile confidence remains in parts of the economy, particularly in services and export-linked manufacturing. The property slump, subdued household demand and deflationary pressure continue to act as a drag even when headline output numbers improve.

That tension between resilience and fragility sits at the centre of the debate over China’s trajectory. The IMF has argued that while the economy expanded 5% in 2025 and has shown greater durability than expected, its long-term model still faces mounting challenges, especially weak domestic demand tied to the prolonged housing downturn and gaps in the social safety net. The World Bank has also projected a slower medium-term path, seeing growth easing to 4.0% in 2026 in an update that stressed the need to unlock stronger consumption.

External conditions are also becoming harsher. The OECD has warned that the conflict centred on Iran has erased what had been shaping up as a broader global growth upgrade, with inflation now expected to run hotter as energy shipments are disrupted. Reuters reported oil prices rising again on March 27 as investors worried the four-week-old Middle East war was starting to weigh more heavily on business and consumer sentiment. For China, that means the advantage of domestic policy flexibility may be offset by weaker overseas demand, pricier inputs and renewed strain on supply chains.

Yet Beijing retains several buffers that help explain QNB’s comparatively steady tone. Banks are expected to gain support from the repricing of vast pools of deposits, improving margins and potentially creating room for further easing. Fiscal policy remains active, industrial policy continues to favour technology and strategic manufacturing, and the export machine, though under pressure from trade frictions, still provides a sizeable cushion. China’s 2025 trade surplus reached a record level, giving policymakers more room than many rivals to manage a volatile year.