A MARTÍNEZ, HOST:
The Iran war is now entering its third month. China has been somewhat insulated from the immediate disruption to energy markets, in part because it has stockpiles of oil, gas and is generating more energy from renewable sources. But Beijing hasn't been able to shield its supply chains, as NPR's Jennifer Pak explains, from the southern Chinese city of Guangzhou.
JENNIFER PAK, BYLINE: China's biggest trade show, the Canton Fair, spans an area of almost 290 football fields. Over 32,000 companies are exhibiting until early May, and they come from all sectors. One minute, I'm watching a Chinese robotic arm prepare a latte.
UNIDENTIFIED PERSON #1: (Speaking Mandarin).
PAK: It's pouring milk foam into the shape of a heart.
(SOUNDBITE OF SONG, "SEE YOU AGAIN")
CHARLIE PUTH: (Singing) Tell you all about it when I see you again, when I see you again.
PAK: Next minute, I'm walking past speakers blasting American pop songs.
(SOUNDBITE OF SONG, "SEE YOU AGAIN")
PUTH: (Singing) Oh, oh.
PAK: Many Chinese suppliers here started off the year rather triumphant. Their exports increased despite U.S. tariffs.
LIAO KEWEN: (Speaking Mandarin).
PAK: Most, like Guangzhou drone manufacturer CZI, expanded to other markets, like the Middle East. But now those exports are on pause, says CEO Liao Kewen.
LIAO: (Speaking Mandarin).
PAK: "Our delivery in February to the Middle East is still stuck in Indonesia," he says. "For now, our Middle East clients are just negotiating but won't place an order," because the Iran war has effectively shut the Strait of Hormuz. But even if ships could get through, logistics costs have shot up.
UNIDENTIFIED PERSON #2: It's a really scary time. We don't know where it's going to go.
PAK: This buyer, who is based in the United Arab Emirates, requested anonymity because he works in the security sector. He counts the government entities in the Middle East among his clients and fears jeopardizing those relations by speaking candidly with the media.
UNIDENTIFIED PERSON #2: When energy prices double in the matter of a few days, it impacts global trade. And that's really scary. And we don't know when it's going to end.
PAK: The Iran war has already hit China's exports, says Lv Daliang with China's customs authority. He spoke at a recent press conference.
(SOUNDBITE OF ARCHIVED RECORDING)
LV DALIANG: (Speaking Mandarin).
PAK: "Growth in global trade is expected to decline significantly," he said. In March, China's imports and exports to the Middle East also went from year-on-year growth in the previous two months to a decline.
(SOUNDBITE OF ARCHIVED RECORDING)
LV: (Speaking Mandarin).
PAK: Raw material costs are up, too, over 30% for Haicheng Sitong, which makes woven sacks to package anything from industrial chemicals to potatoes. Serena Xing is the sales manager.
SERENA XING: (Speaking Mandarin).
PAK: "The key raw material in our product is polypropylene, which is a byproduct of petroleum," she says. "So when oil prices go up, so, too, does the cost of our raw material." And many critical ingredients from the Middle East are in short supply. Cameron Johnson is a Shanghai-based supply chains expert with the consultancy Tidalwave Solutions.
CAMERON JOHNSON: So helium, for example, a third has gone offline from the world, which means everybody's now scrambling for this gas which is used in everything from semiconductors to MRI machines.
PAK: Then there's a shortage of nitrogen and sulfur for fertilizer.
JOHNSON: Every country in the region is now short on their planting season, from Pakistan to the Philippines to China.
PAK: Even if the Iran War stops today, he says...
JOHNSON: We're going to see a cascade effect for the rest of the year at least.
UNIDENTIFIED ANNOUNCER: (Speaking Mandarin).
(SOUNDBITE OF MUSIC)
PAK: To cope, many exhibitors at the Canton Fair tell NPR they're raising prices, and that will eventually pass on to consumers.
ERIC PENG: (Speaking Mandarin).
PAK: Eric Peng of Aeropak, a home and car cleaning brand, says he'll tough it out.
PENG: (Speaking Mandarin).
PAK: "This year," he says, "I'm not seeking growth." He just wants stability.
Jennifer Pak, NPR News, in Guangzhou, China.
(SOUNDBITE OF BARK PSYCHOSIS' SONG, "THE LOOM") Transcript provided by NPR, Copyright NPR.
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