China to Gain Industrial Share as Oil Shock Hits Japan and Korea

An analysis from Guolian Minsheng Securities argues the energy shock from the “Black March” conflict is triggering a “capacity substitution” that benefits Chinese industry, as energy-dependent rivals in Japan and South Korea face crippling cost pressures and production cuts.

The report, released around May 7, suggests that sustained high energy prices are creating a durable competitive advantage for China’s chemical, manufacturing, and new energy sectors. It highlights Japan’s ethylene operating rate, which plunged to a record low of 68.6% in March 2026, as early evidence of the industrial strain. The disruption to global energy markets follows the effective closure of the Strait of Hormuz, which pushed Brent crude prices past $120 per barrel and choked off critical petrochemical feedstocks to Asia.

“The stability of plastic as a basic industrial material has been shaken,” says Chen Ping-Kuo, a professor in industrial engineering and management at Japan’s Ritsumeikan Asia Pacific University, noting the disruption will “move quickly through supply chains.”

The fallout has been swift across Asia’s industrial heartland. The region imports roughly 70% of its naphtha, a key ingredient for plastics, from the Middle East. The blockade has led to a full-blown materials shortage, with the price of virgin plastics jumping from $950 per ton to over $1,800, according to supply chain experts. This has squeezed manufacturers of everything from food packaging to medical equipment, with South Korean regulators probing the hoarding of syringes and other oil-derived medical products.

This dynamic creates a significant opportunity for Chinese producers. The Guolian Minsheng analysis posits that China can replicate its success from 2022, when it absorbed global demand after the Ukraine war disrupted European industry. With a more diversified energy structure and complete domestic supply chains, China is positioned to capture market share from its Asian competitors, who are more acutely exposed to Middle Eastern energy costs.

Asia's Industrial Pain Point

The industrial pain is most acute in Japan and South Korea, whose export-oriented economies are highly dependent on energy imports. According to an analysis of Asian Development Bank data, industries like chemicals, rubber, plastics, and textiles in these nations have the highest exposure to oil price shocks.

The impact extends beyond basic materials. High-energy-use sectors like steel and paper face production pressure, while the competitiveness of advanced manufacturing in electronics and transport equipment is eroded by rising costs throughout the supply chain. South Korea’s global leadership in shipbuilding and electronics is particularly vulnerable to spikes in energy and raw material costs. In Japan, a wave of closures and consolidation is expected among smaller manufacturers in low-margin sectors like plastic toys and packaging.

This industrial pressure is already visible in micro-level data. The record-low 68.6% ethylene operating rate in Japan for March reflects a sharp contraction in its chemical sector. Analysts at Guolian Minsheng expect this trend to soon appear in macroeconomic data, dragging down industrial production and export figures for both Japan and South Korea as their inventory destocking cycles are prolonged by forced production cuts.

China's New Energy Advantage

While its rivals struggle with fossil fuel costs, China is leveraging its dominant position in renewable energy to gain a competitive edge. The "alternative economic viability" of clean energy is accelerating as oil and gas prices remain elevated.

This is reflected in China’s export performance. In the first quarter of 2026, exports of new energy products, including electric vehicles, batteries, and wind power equipment, were a primary driver of growth. This provides a resilient new growth engine for Chinese manufacturing at a time of global supply chain turmoil. The report notes that this trend is a key variable that differentiates the current situation from previous energy shocks.

However, the analysis also sounds a note of caution. Global demand is significantly weaker than it was during the 2021-2022 recovery period. With developed economies facing tighter credit conditions and limited fiscal space, a sustained period of high energy prices could tip the global economy into recession. If a global manufacturing downturn takes hold, the logic of "capacity substitution" could give way to the pressure of a broad-based decline in demand, from which Chinese exporters would not be immune.

This article is for informational purposes only and does not constitute investment advice.