Price pressures are spilling across China’s economy

The Iran war is driving up costs across China's supply chains.

Six weeks into the conflict, we have reported on its impact on China's energy costs, fertilizer, home appliances, and sulphur – but an FT report published April 11 adds further color.

• The price of some polyethylenes – the world's most commonly produced plastic – has doubled, pushing up costs for thousands of consumer goods including packaging, bottles, and children's toys.
• Carbon fibre – a key manufacturing input for autos and consumer goods – has risen 20% in price.

Cost pressures are also spilling into China's services sector as well.

• Citing research by Peng Shaozong – a former macro planning official who now works at a think tank – the FT reports that “costs in energy-intensive sectors including logistics, transportation, aviation, [and] shipping…have jumped as much as 25%, eating into corporate profits.”

The FT also referenced our recent work on helium prices, which are rising sharply – with knock-on effects for high-tech manufacturing sectors including semiconductor chips and medical equipment.

Get smart: The Iran war's inflationary impact on China is no longer confined to energy – it is becoming broad-based, spreading across supply chains and into the services sector simultaneously, compressing margins across a wide range of industries at once.

Get smarter: The timing is particularly difficult for Beijing.

• Policymakers were already grappling with weak consumer demand and limited fiscal and monetary room to maneuver. A broad-based cost shock now threatens to squeeze corporate profits, household purchasing power, and government tax revenue all at the same time.