CICC: Oil prices may boost export share

Ask AI · When comparing the Russia-Ukraine conflict, what new features does the Middle East crisis have in terms of its impact on China’s exports?

In a daily AI Express, a research report from CICC points out that, from the overall level, the oil price rise caused by the conflict in the Middle East is a negative supply-side shock to China’s exports. From a structural perspective, however, there is a certain positive demand impact, which may cause China’s share of exports to increase. Whether overall or structural factors play the leading role depends on how events unfold. Under the base case, the demand effects from the structure side may be more worth focusing on.

First is the demand diversion effect—demand shifts from our country’s export competitors to China, so the export shares of some high energy-consuming products from China may rise. For example, under the impact of the 2022 Russia-Ukraine conflict, production in Europe’s energy-intensive industries was constrained; because China was affected less, export shares of high energy-consuming products such as steel, aluminum, chemicals, and building materials increased. And under the impact of the current Middle East conflict, major Asian economies’ manufacturing sectors are generally more dependent on Middle East energy than China is; thus, export shares of high energy-consuming products from China such as steel, chemicals, and glass may increase.

Second is the demand creation effect—meaning some economies hit harder by oil price shocks may accelerate reducing reliance on traditional energy and import more new energy products, which benefits our country’s exports of new energy and power equipment. Under the impact of the 2022 Russia-Ukraine conflict, Europe accelerated its energy transition, effectively boosting China’s exports of new energy-related products. Under the impact of the current Middle East conflict, the export growth rates of China’s new energy-related products to some Asian economies may further increase. Of course, in extreme scenarios, risks of global economic adjustment rise; China’s exports would also be affected by negative demand shocks stemming from a global economic downturn at the overall level.

Daily Economic News