China factory activity rebounds in March as Iran war looms over growth
[March 31, 2026] By
CHAN HO-HIM
HONG KONG (AP) — China’s factory activity expanded in March, ending two
months of contraction, the government said Tuesday, but analysts say
prolonged impacts of the Iran war could weigh on growth.
The official manufacturing purchasing managers index rose to 50.4 from
49 in February, the National Bureau of Statistics reported, beating
economists’ expectations and notching the strongest reading in a year.
PMI is measured on a scale of 0 to 100 and a reading above 50 indicates
expansion.
While the latest official data covered a period after the Iran war began
on Feb. 28, analysts say the impacts of surging energy costs have not
yet been fully seen. “So far supply disruptions have not occurred in a
material way,” said Jacqueline Rong, Chief China Economist, BNP Paribas,
a French bank.
A years-long property sector slump in China has also weighed on economic
growth and weakened domestic consumption and investment demand in China,
the world’s second-largest economy after the U.S. To help drive its
economy, China has been reliant on growing exports, especially to
regions such as Southeast Asia and Europe, which propelled its trade
surplus last year to a record $1.2 trillion despite higher U.S. tariffs.
China’s export engine could hit headwinds as the Iran war drive up
energy costs and disrupts supply chains, with most maritime traffic
blocked from passing the Strait of Hormuz, through which roughly a fifth
of the world’s oil normally passes.
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 The extent of the impact will depend
on how long the energy flows from the Middle East are cut off, said
BNP Paribas’ Rong. “If it is months, rather than weeks, then the
supply disruptions, not just from oil, but also from the shortage of
many chemical products — such as rare gases — would manifest itself
in disrupting industrial production and services,” she said.
China’s exports could also suffer if overall global growth takes a
serious hit from the energy crisis, Rong said. Analysts say, for
example, higher global inflation could weaken consumption demand for
Chinese goods.
Chinese leaders in early March unveiled an economic growth target of
4.5% to 5% for this year, a slightly lower goal than the “around 5%”
last year and the lowest growth target since 1991.
For now, China’s economy “appears to have weathered” the energy
shock from the Iran war well, wrote Zichun Huang, China economist at
Capital Economics, in a recent research note, although she also
cautioned it is “likely that the fallout from the Iran war will grow
over the coming months.”
With China's exports to the U.S., its largest trading partner, in
decline over the past months, economists are closely watching for
positive signs in trade relations between Washington and Beijing as
U.S. President Donald Trump is expected to meet with Chinese leader
Xi Jinping in May.
Some analysts say lower U.S. tariffs following a recent Supreme
Court ruling against Trump’s wide-reaching global tariffs could give
China a small boost to exports and factory activity.
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