China has privately urged Iran to use its influence to rein in Yemen's Houthi rebels. This diplomatic push follows a direct appeal from Saudi Arabia regarding regional instability.

Diplomatic Engagement

According to a Reuters exclusive, the Chinese government initiated private discussions with Iran. The aim is to leverage Tehran's influence over the Houthi rebels in Yemen. This diplomatic move comes after Saudi Arabia made a direct appeal to Beijing for assistance in managing the regional instability.

The request follows a military surge by the Iran-backed Houthis, who made swift advances along the Red Sea coast and around the Bab el-Mandeb Strait. These advances raised concerns over the security of Saudi oil exports and shipping routes.

While China has publicly called for restraint and dialogue, it privately urged Iran to help prevent further escalation along vital energy routes. The report did not disclose how the message was conveyed or whether it was delivered during Iranian Foreign Minister Abbas Araqchi’s visit to China on Wednesday.

Tehran responded that regional stability and peace depend on ending the U.S.-Israeli war on Iran. China has not threatened to impose economic sanctions on Tehran if it fails to control the Houthis. However, the Chinese foreign ministry stressed that escalating regional instability is not beneficial to any party.

Geopolitical Context

This development occurs as tensions escalate in the Middle East. On Thursday, Saudi Arabia and the Houthis exchanged attacks, raising concerns about further disruption to energy supplies. Another Reuters report stated that alternative routes through Oman have eased fears after Houthi attacks disrupted a key Saudi oil pipeline.

The Houthis emerged in Yemen in the 1990s and are backed by Iran through weapons, training, and funding. They are part of Tehran’s broader "Axis of Resistance" against Western and Israeli influence.

China remains Iran’s largest trading partner for over a decade and its main oil buyer. According to Kpler, China accounted for more than 80% of Iran’s seaborne oil exports in 2025 at about 1.4 million barrels per day.

A senior Western diplomat told Reuters that Beijing is among the few governments that can pressure Iran to restrain the Houthis.

Market Reaction

At the time of writing, Brent crude oil futures expiring in November were trading 1.26% lower at $103.50 per barrel. WTI crude futures expiring in October rose 0.11% to $102.02 per barrel.

Meanwhile, President Donald Trump stated he is considering whether the U.S. should resume military strikes against Iran. He is also scheduled to meet with officials from Saudi Arabia, Qatar, the UAE, and other countries in the coming week to discuss next steps related to Iran.

Former counterterrorism chief Joe Kent advised against military intervention, suggesting instead that the U.S. withdraw troops from the Middle East.

Investor sentiment in China’s A-share market turned cautious in the third quarter of 2026, with expectations for returns falling even as corporate earnings began to recover.

The Cheung Kong Graduate School of Business (CKGSB) Investor Sentiment Survey, covering May to September 2026, revealed that respondents lowered their outlook for A-share gains. The proportion of investors expecting prices to rise fell to 58.6%, down 5.2 percentage points from April 2026. Expected rates of return dropped 1.8 percentage points to negative 0.7%.

Divergence Between Trading Activity and Valuation

While sentiment cooled, trading activity intensified significantly over the past two years. From December 2024 to August 2026, turnover ratios for the Shanghai Composite Index rose from 2.39 to 4.2. The Shenzhen Composite Index saw its turnover ratio climb from 5.84 to 8.5.

However, valuation metrics did not keep pace with this volume surge. Price-to-book ratios increased only modestly during the same period:

Liu Jing, CKGSB Professor of Accounting and Finance, interpreted this divergence as evidence of sharp disagreement among investors regarding whether current prices represent value or risk, rather than broad-based optimism.

What the Numbers Show

A clear disconnect exists between fundamental recovery and investor appetite. While trailing twelve-month net profit growth for A-share listed companies reached 5.9% in June 2026—ending a negative streak from June 2022 through March 2026—investor willingness to deploy capital declined. Specifically, the net proportion of investors seeking to increase direct stock holdings fell 7.3 percentage points to 10.7%, while equity fund allocations dropped 1.2 percentage points to 13.4%. This suggests that improving corporate profitability has not yet translated into renewed confidence among retail and institutional participants.

Sectoral Profit Recovery

Corporate earnings showed strength in specific segments during Q2 2026. Private enterprises recorded net profit growth of 36.7%, while strategic emerging industries saw growth of 36%. Despite these operational improvements, the survey indicates fragile confidence beyond equities, citing softer household consumption and a prolonged property adjustment.

The data also highlights a structural imbalance in capital allocation. Although private enterprises and consumers are needed to drive demand, financial capital continues to flow disproportionately toward government bodies and state-owned enterprises (SOEs). The survey notes that directing more capital to the public sector is unlikely to address insufficient demand, as SOEs primarily support the investment side of the economy.