Domestic impact of higher oil prices remains limited

The war in Iran seems to have had limited impact on China's economy so far. The government has insulated end-users from much of the price shock - indeed, it cut retail prices this week - and the broader inflationary impact in the near-term is likely to be modest. The bigger risk is that the conflict drags on and oil prices remain higher for longer, weighing on global demand for Chinese exports. That would deepen deflationary pressures in Chinese industry.