19 November 2025, China, Shanghai: Boats sail past downtown Shanghai on the Huangpu River. The tallest building on the skyline is the Shanghai Tower (rear).
Bernd von Jutrczenka | Picture Alliance | Getty Images
The outbreak of the Iran war sparked a sharp sell-off across most regions and asset classes in March, as investors weighed the impact the conflict would have on inflation and economic output. China proved to be an exception.
Despite its status as one of the world's major oil importers, China averted the worst of the energy shock caused by the effective closure of the Strait of Hormuz thanks to multi-year efforts to diversify its energy mix and build up reserves.
Its stockpile of over 1.2 billion barrels of oil and diverse mix of energy resources, such as coal, renewables and LNG, made it less vulnerable to upheaval in the Persian Gulf, through which 9% of global oil supply passes.
"Much of the low correlation observed from its capital markets in the last few weeks surely comes from the fact that, as the world's largest oil importer, it has been thinking strategically about a war for some time," Julian Howard, chief multi-asset investment strategist at Gam, told CNBC over email.
China's relative insulation from the conflict could have its roots in the first trade war between the U.S. and China in 2018 during U.S. President Donald Trump's first term in office, according to Peter Boockvar, chief investment officer at One Point BFG Wealth Partners.
"Back then, Trump punched China in the face, and what's happened since then is China started going to the gym, and they started to become more resilient and independent," he told CNBC.
"Our attempt to limit their access to our technology just encouraged them to develop it themselves."
Different characteristics
Chinese government bonds emerged as an unlikely bastion of stability during a period where other traditional havens, such as gold and U.S. Treasurys, stumbled.
Map of the Middle East and Iran on a globe under a magnifying glass in Shanghai, China on March 29, 2026.
Cfoto | Future Publishing | Getty Images
The 10-year Chinese government bond yield has stayed broadly stable at 1.81% since the conflict began, while U.S. Treasury yields moved almost 50 basis points higher to 4.297%.
China is also one of the few major powers that hasn't experienced high inflation since 2022, potentially adding to the allure of Chinese bonds over the past month.
"Importantly, the main problem of this crisis was the inability of countries to react effectively, given very stretched fiscal deficits and debt levels and inflation at uncomfortable levels," Gustavo Medeiros, head of research at emerging markets asset manager Ashmore, told CNBC over email.
"China has been struggling with deflation, so its bond market was less exposed than other major markets. Lower yields mean there was a smaller tightening of financial conditions in China than other countries."
Chinese assets may have also benefited from their underlying ownership profile.
Despite being the largest country in the MSCI Emerging Markets index, less than 5% of its stocks and bonds are held by overseas investors, which limits the scope for forced selling, Medeiros added.
China's stock market also experienced less severe declines than European and Asian peers in March, with its blue-chip onshore benchmark, the CSI 300, down 5.5% over the month. The pan-European Stoxx 600 fell 8%, while India's Nifty 50 shed 10% and Japan's Nikkei 225 dropped 14%.
Competing with the U.S.
Despite recent resilience, China is only just emerging from a prolonged bear market.
Since 2021, the state has been grappling with slowing economic output, weaning itself off a property market bubble, and trying to find a balance between promoting a free market and stock exchange within a one-party autocracy.
Just four years ago, many Western policymakers and investors were calling China "uninvestable."
Shareholders have experienced underwhelming returns over the decades compared to Western equity markets, even as China revolutionized its growth story to become the world's second-largest economy.
Since 2000, the MSCI China has returned 302%, compared to over 500% for the S&P 500. Crucially, the Chinese index is yet to surpass its 2021 highs, during which time the value of the US market has risen over 80%.
How the MSCI China has fared against the S&P 500 since 2000.
As such, China comprises just 3% of the MSCI World index, despite contributing almost 20% to global GDP.
China's ability to match – and, in some cases, surpass – U.S. technological innovation may prove the key in unlocking real shareholder value over the coming years.
"There's only one country, and that's China, competing vigorously with the U.S. in every industry across the board," Liqian Ren, director of modern alpha at WisdomTree, told CNBC in an interview.
"No other country right now has the capability to compete, not just in technology but in commercialization of the technology."
WisdomTree sees AI, biotech, electric vehicles and batteries as the key areas where China is competing with the United States.
Analysts also see China's potential to provide a helping hand to its Asian neighbors in developing energy security.
Li Shuo, director of China Climate Hub at the Asia Society Policy Institute, told CNBC in an interview that China is hoping to convince regional partners it can provide stability and act as a shield from volatility originating from the U.S.
"[China is saying], 'We are here to provide economic development. We are here and we can help you ensure energy supply safety, because we are 80% of global solar panel production. So while you are working hard to insulate yourself from that volatility, we are here to help and we can provide stability,'" he added.
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