Middle East Conflict | Société Générale: China's Economic Resilience Tested, Expected to Maintain Moderate and Loose Monetary Policy

Iran’s geopolitical tensions are escalating. Alicia Garcia-Herrero, Chief Economist at France’s Export-Import Bank, commented that this is increasing pressure on China’s economy from both energy security and the global economic landscape. Without sufficient strong stimulus measures, China’s economic slowdown could worsen further after the Iran conflict.

Garcia-Herrero pointed out that China relies on Iranian crude oil supplies. If key maritime transportation routes, including the Strait of Hormuz, are blocked, it would pose a direct threat to China’s energy imports. China’s large strategic oil reserves could buffer supply shocks in the short term, but if the conflict persists, energy costs are likely to rise further.

She stated that beyond energy risks, the ongoing escalation of Middle East conflicts could accelerate the restructuring of global supply chains and transportation systems, increasing the risk of stagflation in the global economy. For China, weakening external demand combined with rising domestic production costs could slow export growth, and traditional trade surpluses may face pressure.

She emphasized that the Iran war highlights the need for China to boost domestic demand to sustain economic growth. However, rising government debt is limiting fiscal policy space, and the People’s Bank of China is expected to maintain a moderate, accommodative monetary policy. This conflict also underscores the urgent need for China to further develop a resilient economy, even if it means sacrificing some efficiency to enhance security, which will have a profound impact on China’s growth model.