Iran War Impact on Chinese Economy and CNY Scenario Analysis

The report analyzes the impact of the 2026 Iran war on China's economy across three scenarios, predicting relative resilience in the base case with 4.7% GDP growth and a strengthening CNY.

Key Takeaways

• 1.Base case assumes the Iran war and Hormuz disruption end by late May, resulting in a mild GDP growth dent to 4.7% for 2026.
• 2.Inflation is bifurcated: PPI is rising due to energy costs, but CPI remains anchored, allowing the PBOC to maintain an easing bias.
• 3.China's energy reserves (120-140 days) provide short-term resilience, but prolonged conflict would cause non-linear growth drags.

Table of Contents

• Key Points
• Global price shocks are feeding through to China domestic markets, however with nuances
• Rising costs are starting to squeeze industry and threaten growth
• No immediate physical supply tightness for China
• Still strong oil imports resulted in a net surplus of supply in March
• Chinese is less exposed to external oil and natural gas shocks, given its specific primary energy consumption structure and electricity generation mix
• China's government and commercial oil reserves offer good buffer
• However, China remains vulnerable to a pro-longed blockade of the Strait of Hormuz
• Scenarios of Iran war's development and oil assumptions
• The impact of Iran war on Chinese economy
• CNY: Expect USDCNY to decline to 6.6 by year end in base case scenario
• Appendix: Recap on China March and Q1 data

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