The US-Israel war on Iran is pushing up costs for factories around the world, including in China. However, it is also showing how much better positioned China is to weather the blow.

As energy costs rise and supply chains come under strain, Chinese exporters are better placed than producers in Europe and Southeast Asia to withstand the shock, even as their own costs increase. China’s oil reserves and long-running investment in renewable energy offer a degree of insulation from the surge in energy prices. That will allow Chinese factories to keep output humming in the short term.

In contrast, producers in more energy-exposed economies now face sharper cost pressures and risk ceding ground to China’s export machine. But for those manufacturers, the real risk is getting the source of China’s advantage wrong.

It has been crafted over the course of decades, by building dense industrial ecosystems and turning the manufacturing base into a stronghold. The Iran war is showing why that ecosystem is proving so difficult to challenge, leaving producers elsewhere with stark choices.

Of course, China is far from immune to global pressures. The war’s oil price shock is leading to sharp increases in chemicals and plastics. Chinese producers are feeling that pressure, with a recent rebound in factory-gate prices reflecting higher costs rather than stronger demand.

That said, years of often cutthroat domestic competition and price wars have entrenched a focus on cost discipline, leaving Chinese exporters better able to absorb those rising costs. The economy overall is holding up, driven by exports and industry, while domestic consumption remains subdued.