China: Rising Energy Costs Weaken SMEs' Profit Margins, Says Coface

Resilience Built on Energy Mix and Reserves

Coface highlights that China is currently limiting supply disruption risks related to tensions in the Middle East. Domestic coal remains largely dominant in its energy mix, while oil and gas account for only 39% of final energy consumption, significantly below the global average of 62%.

The Strait of Hormuz, through which 35% of China's oil flows pass, remains strategic but less critical compared to other regions. China's strategic oil reserves can cover nearly 100 days of net imports, providing a time buffer against prolonged tension.

Fragile Margins Despite Stable Consumer Prices

In March 2026, producer prices in China increased by 0.5% year-on-year, marking the first annual rise in over three years, according to Coface. Petrochemical supply chains significantly contributed to this trend. For the time being, this increase is being absorbed by intermediary sectors amid weak final demand, and consumer prices remain moderate thanks to fuel price regulation mechanisms and the growth of electric vehicles.

However, Coface's analysis indicates that SMEs appear particularly vulnerable, lacking the ability to pass on cost increases. Several sectors, such as textiles, chemicals, and synthetic fibers, are already reducing their production. Large corporations, benefiting from long-term contracts and economies of scale, are better able to weather the impact.

A Major Risk if the Crisis Drags On

Coface warns that a prolonged conflict in the Middle East could lead to a sustained spike in energy prices, heavily weighing on global growth. A doubling of energy prices compared to pre-war levels could reduce global growth by more than one percentage point by 2026, with direct repercussions on demand directed towards China. Junyu Tan, an economist for Northern Asia at Coface, concludes: « China is currently managing to avoid a major supply shock thanks to its energy mix and industrial ecosystem. However, the sustained increase in costs creates a new vulnerability front: that of margins, especially for companies that are most exposed and least able to pass on the price increases."