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

The world is experiencing one of the most severe energy supply shocks in decades. Escalation of the conflict in Iran has led to a full closure of the Strait of Hormuz; as the world’s most important energy chokepoint, about 20% of global oil and liquefied natural gas (LNG) transits through it in 2025. Since February 27, benchmark energy prices of various kinds have surged sharply: East Asia LNG prices have risen by 87.7%, Europe LNG prices by 58.7%, and Brent crude oil prices by 79.3%. For most industrial economies, the shock’s consequences are immediate—fuel costs have jumped sharply, electricity supplies have tightened, and this 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 global economic slowdown would also affect China’s exporting firms. But China’s exporting firms have demonstrated 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 years, as the trend toward the electrification of global manufacturing has accelerated, the unique structure of China’s power system means that China’s manufacturing industry is almost unaffected by current LNG and oil price fluctuations sweeping global markets. In an increasingly electrified world economy, China’s modern, strictly regulated power supply system—powered mainly by domestically produced coal, with little dependence on oil and gas, and with rising growth of substitute energy sources—may grant China’s export sector a rare competitive advantage. Accounting for about 30% of global manufacturing, China’s manufacturing industry may have its position inadvertently further reinforced by the current global energy situation. Of course, if the global energy crisis continues to worsen, it will ultimately affect China’s oil and gas supply and external demand to an even greater extent.

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