China's exports slowed down sharply in March as the war in the Middle East led to a rise in energy and transportation costs, hurting global demand and exposing the risks in Beijing's strategy of leaning on manufacturing to sustain growth.
The world's second-largest economy surged into 2026 on red-hot AI-fuelled electronics demand, raising expectations it could eclipse last year's $1.2 trillion record trade surplus.
But the conflict has disrupted global growth, leaving China especially vulnerable as it has relied on foreign demand to offset a prolonged inability to revive consumption at home.
Outbound shipments grew by just 2.5% in March, customs data showed on Tuesday, a five-month low, and far below the 21.8% surge seen over the January-February period. Economists had forecast growth of 8.3% in a Reuters poll.
"Export growth to major destinations slowed across the board," said Zhiwei Zhang, chief economist at Pinpoint Asset Management, attributing the drop to global uncertainty over the Iran war.
"I think China's trade surplus will shrink this year, as China cannot pass through the higher energy prices completely to foreign consumers," he added.
The signs are already evident: China's March trade surplus came in at just $51.13 billion, far below expectations of $108 billion.
A sharp 27.8% surge in imports – the strongest since November 2021 – weighed on the balance. That compared with a 19.8% increase in January-February and forecasts for 11.2% growth.
China's status as the world's largest manufacturer and energy importer leaves it acutely exposed to a global energy shock. Diversified supplies and large oil reserves offer some protection, but uncertainty over the conflict's duration risks undermining artificial intelligence-fuelled demand for chips and servers, blurring the growth picture.
Even China, long criticized by trading partners for subsidy-backed, cut-price manufacturing, is not insulated from the hit to buyers' purchasing power as fuel and transport costs rise.
Separate gross domestic product (GDP) data due on Thursday is expected to show the $19 trillion economy regaining some momentum in the first quarter, but full-year growth is set to slow to 4.6% from last year’s 5.0%, broadly in line with the official target of 4.5%-5.0%.
Chinese goods will be "even more competitive" as the energy shock "pushes up the price in most of the countries" more than in China, said Chen Bo, senior research fellow at the National University of Singapore's East Asian Institute.
Chen expects global demand for Chinese-made electric vehicles to increase.
Fred Neumann, HSBC's chief Asia economist, said China could stand to benefit from taking the decision in the early 2000s to stockpile commodities, as it could help blunt the impact of raw-material shocks on factory gate prices.
China's exports of refined oil products rose 20.5% month-on-month, totalling 4.6 million metric tons.
Disruptions to global energy supply lines will be felt in China, even if it's not yet showing up in the data.
Natural gas imports for March dropped by an annual 10.7%, the lowest level since October 2022, with Chinese ships diverting between eight and 10 cargoes over the course of the month to sell where prices are higher, according to ICIS, Kpler and Vortexa data.
Crude oil imports also fell 2.8% year-on-year, but this was predominantly due to a high base effect, with March arrivals having been loaded onto ships before the war began.
The figures were further muddied by the seasonal effects of a late Lunar New Year national holiday, said Xu Tianchen, senior economist at the Economist Intelligence Unit, during which factories shut as workers down tools to celebrate.
"This explains the decline across the low-value-added sectors, textiles, garments, bags, toys, furniture, as they are reliant on migrant workers," Xu said.
A high base is also a drag, after Chinese factories rushed shipments a year earlier to beat U.S. President Donald Trump's April 2 "Liberation Day” tariff deadline.
March factory activity data out of China showed goods exports continued to support growth, but the war in Iran weighed on sentiment as commodity prices rose sharply, lifting input costs.
Some analysts expect sustained tech demand to underpin Chinese exports.
"For Q1 as a whole, export growth rose to its highest level in four years," said Zichun Huang, China economist at Capital Economics.
"Despite the energy price shock, exports should stay solid in the coming quarters, thanks to strong demand for semiconductors and green technologies."
