Lu Ting: The Global Energy Crisis, Power Supply, and China's Hidden Advantages in Manufacturing

One of the most severe energy supply shocks in decades is unfolding worldwide. The escalation of the Iran conflict has led to a full closure of the Strait of Hormuz; as one of the world’s most important energy chokepoints, about 20% of global oil and liquefied natural gas (LNG) transits through it in 2025. Since February 27, all kinds of energy benchmark prices have surged significantly: East Asia LNG prices are up 87.7%, Europe LNG prices are up 58.7%, and Brent crude oil prices are up 79.3%. For most industrial economies, the consequences of the shock are immediate—fuel costs are rising sharply and power supply is becoming tight, which in turn directly weakens their export competitiveness.

Although China is the largest user of the Strait of Hormuz and the world’s largest net importer of oil and natural gas, the global energy supply shock caused by the blockade of the Strait of Hormuz would also affect China’s energy supply, and the global economic slowdown would also affect China’s export-oriented companies. But China’s export companies have shown high resilience in past external shocks. Manufacturing exports account for 95% of China’s total goods exports and 25% of global manufacturing exports. Over the past 20-plus years, as the global manufacturing sector has accelerated electrification, the unique structure of China’s power system has made China’s manufacturing almost unaffected by LNG and oil price fluctuations currently sweeping across global markets. In an increasingly electrified world economy, China’s modern, domestically produced coal–dominated, power-supply system that relies on little on oil and gas, with substitute energy gradually rising and under strict regulation, may grant China’s export industry a rare competitive advantage. With China’s manufacturing accounting for about 30% of global manufacturing, its position may be further strengthened—perhaps unintentionally—by the current global energy situation. Of course, if the global energy crisis continues to worsen, it will ultimately impact China’s oil and gas supply and external demand to an even greater extent.

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