Crowded shoes and concentrated warehouses: How the Middle East conflict is affecting China’s economy
In a story full of shops and showrooms in the Chinese city of Yiwu, parts of what is widely known as “the world’s supermarket” are beginning to look like a world-class warehouse.
Across a staggering 80,000 stalls spread over 50 million square feet, vendors sell everything from glittery Christmas ornaments and plastic toys to high-end electronics. Amazon and Walmart get most of what they sell from here.
If you buy the land, Yiwu sells it.
However, household goods that should be in containers at sea sit idle, victims of a conflict thousands of kilometers away.
To get a picture of how the US-led war in the Persian Gulf, and Iran’s stranglehold on the Strait of Hormuz, is shaking the entire world’s chains, this city in eastern China offers striking examples.
The Strait of Hormuz is an important oil route. Here are the facts.
Although there are no hard statistics on how much of the trade here is driven by the Middle East, local business groups estimate that the region buys 30 percent of what is sold here.
“We have a lot of customers in the Middle East,” said Suad Ding, a safety footwear supplier whose showroom includes lines of hiking and construction boots.
He has 25,000 pairs of boots and shoes that were meant to be on the shelves in Riyadh and Cairo and are now stuck in the supply chain.
Before the war, Ding says it usually costs $1,200 US to ship a container – now the price is around $6,000.
“The customer said the shipping is too expensive,” he told CBC News from his showroom.
Importers on the other hand are waiting for prices to drop. Another possibility is that Ding will find another customer – he hopes that the potential buyers from Argentina that he recently met at the market will take some of his shoes instead.
“[The war] it will have a big impact,” Ding said. “But we can’t just wait. We will actively promote foreign business.”
The backlog is growing
The wholesale backlog extends beyond shoes.
Just outside Yiwu, businessman Li Tenghui’s warehouse is packed to the ceiling with boxes of kitchenware destined for Lebanon that he can’t move because of rising shipping costs.
Next to those boxes are large machine parts that should have been in Iraq. There are also hundreds of other glass boxes made for Saudi Arabia.
AEverything is supported because importers cannot afford the transportation costs or are afraid that the ships carrying the goods will be attacked on the way, said Li.
“Our customers from the Middle East have no intention [of making] new orders,” he said.
He says the increase in oil prices also increases the cost of products sold in Yiwu.
“Materials [in] plastic products have [risen] 40 percent. This will have a significant impact on prices throughout the product and supply chain,” said Li.
Watching tanks
The problem isn’t just what Yiwu is posting; and it’s about what China brings. While traders are worried about shipping containers, energy analysts are watching tankers.
Erica Downs, an energy policy expert at Columbia University who works in China, says the disruption to liquefied natural gas (LNG) production and exports from Qatar is significant.
“China imports 30 percent of its LNG from Qatar. The disruption … will affect different industries differently. – it’s bad news for glass, ceramics and LNG trucks,” he told CBC News in an email.
China is also the largest exporter of Iranian crude oil, having bought 90 percent of Iran’s supply by 2025.
US President Donald Trump said that NATO could be in danger if it does not receive help to protect the Strait of Hormuz, an important oil route near Iran.
Downs says Iran appears to be continuing to allow Chinese-bound tankers to pass through the Strait of Hormuz exit, possibly ensuring that small private refiners – known as “tea” refineries, which handle most of Iran’s waste – can continue to operate.
At the same time, Iranian imports make up a small portion of China’s total oil imports – somewhere in the region of 11 to 13 percent – meaning that China’s oil comes from a variety of suppliers.
Beyond that rapid shipment, he says China appears to be preparing for war by buying significant amounts of oil in advance as part of the country’s strategic reserve.
The use of renewable energy has also boomed in China and the continued popularity of electric vehicles, all of which further diversify the electricity supply in the world’s second largest economy.
Opportunity in crisis
This sense of preparedness trickled down to Yiwu’s leadership.
Li Ye, vice president of the local chamber of commerce, told CBC News that while the stories of struggling retailers are constant, there is a sense of historical “déjà vu.”
“Overall, I think we still have hope [although] it’s difficult at the moment,” said Li, who is also known as Rocky.
“It’s like the Iraq war,” he said. “The United States ended the war and left, and those countries still needed Chinese goods to rebuild. I believe the same is true of Iran, and even Israel.”
He said he is optimistic about the chances of “rebuilding” in the region after that.
That long-term hope may explain why Beijing has remained silent as its ally Iran has been rattled by US and Israeli attacks. For many in China, the ultimate strategic goal is to be the strongest standing when you’re done.
“In our view, if China can avoid taking sides or being drawn into any wars in the next 10 to 20 years, there is a good chance that we will become the world’s largest economy,” Li said.
