In the past four decades, China has transformed from a predominantly agricultural economy to the world’s second largest economic powerhouse. Hundreds of millions lifted poverty, so many lives changed and recognition on the global stage. A huge aspect of this has been China’s dominance over global manufacturing and the Belt and Road expansion. China accounts for approximately 30% of the world’s manufacturing making it the largest manufacturer of valuable goods. Manufacturing strength alone does not help it secure global influence. To expand its own influence beyond its borders, China launched the Belt and Road initiative, an infrastructure and trade strategy that connects Asia, Africa and Europe through railways, ports and energy corridors. Through this initiative China not only was able to easily export their goods but they extended its economic footprint across the world. China’s recent economic success is the talking point of today, but it has one major flaw. China’s economic engine runs on energy and for that they need oil. What if oil prices shoot up?
The rise of China’s economy started all the way in 1978 with the Chinese economic reforms under Deng Xiaoping. These reforms outline the “household responsibility system” in agriculture, this replaced collective farming, which allowed farmers to sell surplus crops at market prices which increased agricultural outputs. Another aspect of these reforms was the opening to foreign investment, China opened up to foreign capitals and investment while establishing special economic zones that encouraged foreign investment and trade. The result of these zones was that foreign direct investment flooded in and China’s manufacturing exports surged. Zones like Shenzhen, Shenzhen were a massive part of this project because it was Deng Xiaoping’s crucial “laboratory” for the opening up policy. Shenzhen was able to attract a lot of foreign investment due to its proximity to Hong Kong. Shenzhen offered cheap land to foreign businesses and tax incentives.
Another huge pillar in China’s rise to economic growth was the fact that it was “the world’s factory,” almost 30% of manufactured goods came out of China. China dominated in export categories such as: steel, rare metals and electronics. China was able to manufacture a lot of the world’s phones and other electronics. Entry into the World Trade Organization (WTO) in 2001, skyrocketed China’s exports, this was because China offered foreign nations cheaper and higher quality products. Due to this China became a central part of global supply chains. Under the leadership of current president Xi Jinping China’s economic ambitions began to stretch far beyond its own markets. Their already rapid growth had labelled it as the world’s manufacturer but they needed something more to sustain all the progress, secure trade routes, stable supply chains, and long-term strategic partnerships. In 2013, Xi introduced the Belt and Road initiative, a strategy which planned to reshape international trade networks. This initiative is often referred to as the modern Silk Road and focuses on large-scale infrastructure diplomacy. Through the ability to construct different types of transportation infrastructure, China expanded its economic footprint all over the world.
This push for infrastructure serves various strategic purposes, it creates new markets for Chinese goods and services, this ensures its continued demand for its manufacturing sector. This project also strengthens political ties with participating countries through long-term economic partnerships. Finally, it helps secure supply chains specifically for vital resources. The project ensures that all overland rail corridors link China to European markets. In essence, the Belt and Road Initiative is not just about building roads and bridges, it is about constructing a global economic architecture in which China plays a central role. Yet behind all of this industrial and geopolitical development lies one significant vulnerability: China’s heavy reliance on energy, especially oil. Along with its industrial expansion, China has aggressively invested in artificial intelligence to help make the nation’s productivity levels better. AI-driven automation in factories, logistics optimization, and predictive supply chain management have strengthened China’s manufacturing dominance. By putting in smart technologies to its industrial areas, China is reducing costs and preparing its economy for the future.
China relies heavily on oil; it is the world’s largest consumer of crude oil in the world. It imports over 70% of its oil consumption, making it dependent on foreign power. Major suppliers are Saudi Arabia, Russia and Iran. Just Russia and Iran alone supply China with nearly 30% of their oil. 90% of Iran’s crude oil goes to China! This is a massive vulnerability because China’s oil comes mainly from maritime trade routes such as the Strait of Malacca and the Strait of Hormuz. These sea lanes are dominated by the US navy. The Malacca Dilemma refers to China’s strategic vulnerability due to its heavy reliance on the narrow Strait of Malacca, leaving its economy exposed to potential blockades by rival powers. 80% of Chinese oil passes through this single checkpoint. Current events have led officials to predict a spike in oil prices, what does this mean for China? A rise in oil prices means higher costs in transportation, increased factory costs and that export prices will rise.
For China this means trucking goods to ports cost more and shipping containers overseas becomes more expensive due to higher gas prices. There are countries around the world that import Chinese goods. If Chinese imports become more expensive, so do retail prices across the world and consumer goods cost more and consumer goods cost more. This will slow down global economic growth, economists call this a transmission effect. If oil prices were to rise, trade deficit pressure would also increase due to its high reliance on energy imports, as higher costs widen the import bill. This would also strain the Chinese yuan stability. While this is a vulnerability for China, they already have put countermeasures in place, China leads the world in solar panels and renewable energy like electric vehicles. BYD or Build Your Dreams is a popular Chinese car company that specializes in electric cars. This measure will help them reduce oil reliance through adopting electric cars and other sources or renewable energy. Current escalating measures in the Middle East have disrupted shipment through the Strait of Hormuz an area of which 20% of global oil comes through, this sends energy prices skyrocketing and threatens global economic stability. China, heavily reliant on Middle Eastern oil, is now up against increased costs and supply uncertainty, while Iran’s oil exports are squeezed by sanctions and military pressure.
China’s rise was not luck, it was calculated strategy and resilience. Though energy remains the backbone of their industrial power. If oil markets destabilize China faces a short term economic strain, while long term adaptation will help it in its next phase of growth. The question is not whether China can survive an oil shock, but whether it can turn energy vulnerability into strategic advantage.
