(Yicai) March 26 -- The Middle East conflict has pushed international oil prices sharply higher, raising global inflation expectations and triggering significant volatility across global assets since the end of February. Yet the impact on China’s economy remains limited, and the country’s capital markets continue to show strong resilience.

The effect of rising oil prices on China’s overall price level is relatively small. Oil affects prices mainly through cost and expectation-linked channels, pushing up the prices of major commodities like energy, chemicals, non-ferrous metals and black metals. These, in turn, exert upward pressure on overall price levels along the chain of commodity prices, affecting the producer price index, which is a measure of industrial profitability, and then the consumer price index, which is a key gauge of inflation.

Using the elasticity coefficient method, if the oil price’s median range reaches between USD85 and USD100 per barrel this year, it will marginally push up China’s PPI by between 1.5 percent and 2.8 percent and the CPI by roughly 0.9 percent to 1 percent.

But China’s inflation remains relatively low. In recent years, the CPI and PPI have stayed in a moderate range. Last year they were 0 percent and minus 2.6 percent respectively, meaning that domestic macro policies still have ample room to respond. So even a sharp jump in oil prices is unlikely to trigger broad inflationary pressures.

Energy Resilience

China’s leading position in the renewable energy sector and its ongoing energy transformation also make the economy more resilient to oil price shocks. The push for electrification is accelerating, further reducing dependence on oil.

By the end of last year, China had 43.97 million electric cars on the road and new-energy passenger car sales made up more than half of total sales for the first time, significantly cutting households’ reliance on fuel.

Newly installed capacity of renewable energy power generation surged 21 percent last year from the previous year to 452 million kilowatts, accounting for 83 percent of all new power capacity. By the end of last year, renewables made up about 60 percent of total power capacity, and green electricity accounted for nearly 40 percent of total consumption. New renewable generation in 2025 alone could cover the country’s entire incremental electricity demand.

Profit Growth

With macro policies continually being rolled out and domestic demand gradually improving, Chinese companies listed on the mainland are seeing steady profit growth and stronger earnings capacity. This upward trend is expected to continue this year, driven by the recovery of the nominal economy.

In the first three quarters last year, net profit at all mainland-listed firms jumped 5.5 percent from a year ago while total revenue climbed 1.2 percent, both improving significantly from 2024. Profit growth was particularly strong among companies in emerging sectors that are listed on Shenzhen’s ChiNext Board and Shanghai’s Star Market.

With stable real economic growth and continued recovery in nominal growth, listed firms’ profits are expected to keep rising this year. On the one hand, the steady recovery of nominal growth clearly benefits corporate profits and on the other hand, policies aimed at improving capacity utilization, such as “anti-involution” measures, will further benefit the recovery of corporate profit margins.

Market Resilience

The overall quality of China’s listed companies has steadily improved in recent years, with significant gains in innovation. In 2024, mainland-listed firms spent a total of CNY1.85 trillion (USD267.8 billion) on R&D, a jump of 138 percent from 2018, with the proportion of R&D expenditure to revenue also rising sharply.

Investor-focused practices have strengthened, which is an important indicator of China’s capital market moving toward high-quality development. Last year, companies listed on the mainland paid out over CNY2.6 trillion (USD376 .4 billion) in cash dividends, up nearly 10 percent from the previous year and hitting a record high.

Stock buybacks are also on the rise. In 2025, almost 1,500 companies repurchased shares, with a total scale of over CNY140 billion (USD20.2 billion). These actions send clear signals of stable profits and undervalued corporate value, helping stabilize investor expectations and boost confidence.

A number of policies encouraging long-term capital inflows have been rolled out in recent years. In January last year, the “Implementation Plan for Promoting the Entry of Long-Term Funds Into the Market” was issued, requiring public funds to increase holdings in mainland stocks by 10 percent each year over the next three years, while major state-owned insurers must invest 30 percent of new premiums in the mainland stock markets starting in 2025.

By the end of last year, medium- and long-term capital held about CNY23 trillion (USD3.3 trillion) of the tradable market value on the mainland stock markets, a jump of 36 percent from the start of the year, providing a solid foundation for market stability.

The author, Yan Xiang, is chief economist at Founder Securities.

Editor: Kim Taylor