China’s manufacturing activity expanded in March after two months of contraction, according to data released by the National Bureau of Statistics, but the reading arrived with a cloud of uncertainty tied to the Iran war. The official manufacturing purchasing managers index, or PMI, rose to 50.4 from 49 in February, signaling a shift back toward growth in the factory sector. The government’s estimate covered a period after the war began on Feb. 28, yet analysts said the full effects of the conflict—particularly through energy prices—had not fully surfaced in the factories’ data by then.
The PMI is scored on a scale of 0 to 100, and readings above 50 correspond to expansion. Ending the contraction trend, the March rebound was also described by AP as the strongest PMI reading in a year. Even so, economists cautioned that the survey may have captured only the early phase of disruptions, rather than the later operational impacts that could arise if disruptions persist.
BNP Paribas’ Jacqueline Rong said that, so far, the Iran war had not produced significant supply disruptions affecting China’s economy. “So far supply disruptions have not occurred in a material way,” Rong said, according to AP. She also pointed to the possibility that industrial output could face pressure later, as the conflict affects energy flows and related supply chains.
Rong said the size and timing of the eventual impact would depend on how long energy flows from the Middle East are cut off. She warned that if disruptions last for months rather than weeks, problems could extend beyond oil to shortages of chemical products, including rare gases, and could then disrupt industrial production and services. She also said that China’s exports could suffer if the broader global growth outlook weakens because of the energy crisis.
Analysts also tied China’s growth concerns to pressures beyond the war. AP reported that a years-long property sector slump has weighed on economic growth and weakened domestic consumption and investment demand, leaving China more reliant on exports. The report said China pushed exports particularly toward regions including Southeast Asia and Europe, and that last year’s trade surplus reached a record $1.2 trillion despite higher U.S. tariffs.
China’s export engine could face headwinds if war-driven energy costs rise and supply chains get disrupted, AP reported. The article noted that many maritime routes have been blocked from passing the Strait of Hormuz, through which roughly a fifth of the world’s oil normally passes—an interruption that can transmit costs through manufacturing supply chains.
Officials in early March set an economic growth target for 2026 of 4.5% to 5%, which AP said is slightly lower than the “around 5%” target from last year and the lowest goal since 1991. For now, Capital Economics economist Zichun Huang wrote in a research note that China’s economy “appears to have weathered” the energy shock, while adding that the fallout from the Iran war is “likely that the fallout from the Iran war will grow over the coming months.”
Economists said trade dynamics with the United States are also a factor to watch as the conflict continues. AP reported that China’s exports to the U.S. have declined in recent months, and it said analysts are monitoring for signs of improvement ahead of a planned May meeting between President Donald Trump and Chinese leader Xi Jinping. Some analysts suggested that lower U.S. tariffs following a Supreme Court ruling against Trump’s wide-reaching global tariffs could provide a small boost to China’s exports and factory activity, even as war-related costs remain a risk.