The Chinese economy thrives as a manufacturing powerhouse and the nation's products seem to be everywhere. The majority of tags, labels, and stickers on a variety of goods proclaim they are &#;Made in China.&#; Because of this, it's understandable Western consumers might wonder, &#;Why is everything made in China?&#;
If you want to learn more, please visit our website china tools wholesaler.
Some may think the ubiquity of Chinese products is due to the abundance of cheap Chinese labor that brings down the production costs, but there is much more to it than that. In addition to its low labor costs, China has become known as "the world's factory" because of its strong business ecosystem, relatively lax commercial regulations, low taxes and duties, and competitive currency practices. Here we review each of these key factors.
Lower Wages
China is home to approximately 1.41 billion people, making it the most populous country in the world. The law of supply and demand tells us that since the supply of workers is greater than the demand for low-wage workers, wages stay low. Moreover, the majority of Chinese were rural and lower-middle-class or poor until the late 20th century when internal migration turned the country's rural-urban distribution upside-down. These immigrants to industrial cities are often willing to work many shifts for low wages.
China has relatively lax laws on child labor and lower minimum wages than more industrialized countries. However, this situation seems to be changing and more provinces have raised their minimum wages in response to increases in the cost of living.
There are two minimum wages: the hourly minimum wage and the monthly minimum wage, which does not include any additional payments for overtime, night shifts and weekend work. Both are set by provincial governments, which update the minimum wage every few years. As of , Shanghai has the highest hourly minimum wage among 31 province-level governments (RMB 2,690/US$370 per month), while Beijing has the highest hourly minimum wage (26.4/$3.70 U.S.).
The huge labor pool in China helps to produce in bulk, accommodate any seasonal industry requirement, and even cater to sudden rises in the demand schedule.
Business Ecosystem
Industrial production does not take place in isolation, but rather relies on networks of suppliers, component manufacturers, distributors, government agencies, and customers who are all involved in the process of production through competition and cooperation. The business ecosystem in China has evolved quite a lot since the s.
For example, Shenzhen, a city bordering Hong Kong in the southeast, has evolved as a hub for the electronics industry. It has cultivated an ecosystem to support the manufacturing supply chain, including component manufacturers, low-cost workers, a technical workforce, assembly suppliers, and customers.
American companies like Apple Inc. (AAPL) take advantage of China's supply chain efficiencies to keep costs low and margins high. Foxconn Technology Group (a Taiwan-based manufacturer of electronics) has multiple suppliers and manufacturers of components that are at nearby locations. For many companies, it's economically unfeasible to take the components to the U.S. to assemble the final product.
Lower Regulatory Requirements
Manufacturers in most industrial economies have to navigate a labyrinth of regulations covering consumer protection, workplace safety, labor laws, and protection of the environment. As a relative newcomer to the world industrial economy, China's regulations are not as strict as those in other countries.
Historically, Chinese factories have employed child labor, have had long shift hours, and have not provided the workers with compensation insurance. As the economy developed, the Chinese government instituted reforms that protect workers' rights and provide for fairer compensation. However, compliance in many industries is low and change has been slow. Additionally, environmental protection laws are routinely ignored, enabling Chinese factories to cut down on waste management costs.
According to a World Bank report, 18 of the world&#;s top 20 most polluted cities are in China. However, air pollution in China's largest cities decreased during the early shut-down periods of COVID-19.
Taxes and Duties
The export tax rebate policy was initiated in by China as a way to boost the competitiveness of its exports by abolishing double taxation on exported goods. Exported goods were subject to zero percent value-added tax (VAT), meaning they enjoyed a VAT exemption or rebate policy. Additionally, consumer products from China were exempted from any import taxes. These lower tax rates helped to keep the cost of production low, enabling the country to attract investors and companies looking to produce low-cost goods.
China and U.S. Tariffs
In July , the U.S. announced China-specific tariffs, targeting 818 imported Chinese products valued at $34 billion. This was the first of many rounds of tariffs imposed by both countries, resulting in $550 billion of U.S. tariffs applied to Chinese goods and $185 billion of Chinese tariffs applied to U.S. goods as of February .
Upon President Joe Biden taking office, China's Foreign Minister Wang Yi called for the end of multiple tariffs. Throughout the Biden presidency, there have been ongoing discussion of easing tariffs. As the United States continued to battle rising inflation throughout , both President Biden and U.S. Secretary of the Treasury Janet Yellen stated easing tariffs with China could have positive implications on domestic inflation concerns.
Currency
China has been accused of artificially depressing the value of the yuan to provide an edge for its exports against similar goods produced by U.S. competitors. China keeps a check on the appreciation of the yuan by buying dollars and selling yuan. The low price of the yuan encourages foreign manufacturers to buy Chinese goods, thereby making the country more competitive in the world market. The yuan was estimated to be undervalued by 30% against the dollar in late .
In , the yuan appreciated 8% against the dollar, a move that experts say came about after former President Trump threatened to label China a currency manipulator. However, this trend reversed and the yuan weakened against the dollar beginning in June when the U.S. imposed tariffs on Chinese goods.
On Aug. 8, , China's central bank lowered the yuan to 7. per dollar, the weakest level since April . During and after the COVID-19 pandemic, the yuan continued to lose value to the U.S. Dollar. The average exchange rate throughout was 6. CNY to USD with the exchange rate hitting 7.17 at the start of .
Are you interested in learning more about screwdriver supplier? Contact us today to secure an expert consultation!
As of May , the Chinese foreign exchange reserves totaled approximately $3.2 trillion.
China has many favorable conditions that strengthen its economy. It often invests heavily in domestic infrastructure and real estate. It has lower wage requirements and favorable tax treatment help make manufacturing costs low. It also boasts relative supply chain efficiencies that entices international corporations
As of March , Chinese investors held over $767 billion of U.S. Treasury debt. Note that this includes all accounts based in mainland China, not just the Chinese government.
No, China has the second-largest economy in the world. The United States has the largest economy in the world; as of , the International Monetary Fund estimates the U.S.'s GDP was $28.8 trillion. By comparison, the IMF estimated China's GDP at $18.8 trillion.
The Bottom Line
Pundits have wondered if China will lose its spot as "the world's factory&#; as other emerging economies offering cheap labor dull China's competitive edge. However, the availability of cheap labor is just one of many factors that have kept the "Made in China" label on so many products purchased by consumers around the world. It will take more than low labor costs for emerging economies to set up a business ecosystem that can compete with China's. For some time to come, China will be "the world factory&#; with its low production costs, huge labor pool, vast talent base, and business ecosystem.
This post was first published on https://www.china2west.com/.
China has a dominant position around the globe in mass production, and for companies who partner with a Chinese supplier, there are many benefits. However, choosing a manufacturer or supplier overseas can be a daunting task. Choosing a partner is no small feat and should be carefully done. Your own business hinges on a steady supply of quality items, and finding suppliers in China means sorting out who will support your business goals and who will take advantage of you.
An Overview of Suppliers in China
China isn&#;t called the world&#;s market without reason. The nation is the largest manufacturing powerhouse in the world. China produces 50% of the global supply of industrial goods and crude steel, 50% of the world&#;s coal production, 60% of the world&#;s cement production, 50% of the global vehicle supply and holds 150% of the U.S. level of industrial patent applications. In addition to these resources, China also remains the largest global producer of robots, highways, machine tools, cellphones, computers, chemical fibers and more.
Whatever you provide to your consumers, you are sure to find a manufacturing or production company located in China. There are much lower material, labor and supply costs in the country, which makes it an attractive option for fulfilling your production needs. While there are many good options for a Chinese partnership, there are concerns of unethical business dealings, such as the theft of intellectual property or production counterfeits. These reasons require caution and research when choosing from the suppliers in China.
Finding Suppliers in China
The global market relies heavily on the Canton Fair for choosing suppliers and looking for new inventory options. This is the largest trade fair held in China and it occurs twice a year in Guangzhou. Over 180,000 buyers and 26,000 exhibitors take part in the event, and it is often hailed as the trade show for everything. When looking for the right Chinese supplier, this is the place to start. There are several small fairs held in China that bring a number of manufacturing, material suppliers, equipment dealers and other accessories under one roof.
If you don&#;t want to travel overseas, you can also visit the international sourcing area of the National Hardware Show held each year in Las Vegas or the International Manufacturing Technology Show. Attending a fair is a great way to speak directly to a representative from a supplier and see firsthand what products and options are available for your company. You build a network of contacts across a wide range of suppliers and get a better idea of how you can use suppliers in China to expand or grow your business.
For companies that are new to outsourcing, particularity overseas, there are sourcing agents who can help guide you through the process. Though you may find a company that offers exactly what you need, sourcing agents can help with the research needed to determine a quality supplier from a scam. The many tasks that go into working with a supplier include getting a quote from a potential supplier, arranging payment terms, evaluating the factory or production schedule, managing quality control inspects, determining transportation logistics and communicating your specific manufacturing requirements or other information. This can be overwhelming and external support is sometimes needed.
Determining What Kind of Suppliers in China You Need
Your needs determine whether you choose to work with a manufacturer or a trading company, as there are differences between the two. A factory typically delivers a specific kind of product or specializes in a manufacturing process in order to keep overhead and other costs low. This is the option you would need if you are looking for manufacturing or assembly services in China. You negotiate for exactly what you want built, the minimum order quantity, and any other specifications that deliver your final product.
If you are looking to source a range of products in mass quantities, you may need to work with a trading company. These companies appeal to global buyers and act as middlemen between the buyer and production factories. These resellers are OK if you are looking for retail options with clothes, toys, beauty products or cheap electronics. The middleman connection is still affordable, but not when you are looking to source products needing specific technical requirements and manufacturing.
The Benefits of Suppliers in China
For your strategic sourcing partnership to work, three key factors must be considered: stability, cost management and risk management. When these elements are in place, sourcing your goods from China is a win-win for both partners. Low-cost manufacturing is a cost advantage so long as your quest for the lowest rates doesn&#;t lead you to inferior-quality items and inconsistent delivery. Order quantity and frequency of production will impact costs, often bringing a lower price without sacrificing quality.
The Chinese culture prioritizes harmony in relationships, and this trickles over into business dealings or partnerships with a Chinese supplier. For their part, Chinese suppliers will be emotionally invested in the partnership and work hard to build trust and respect in the relationship. This firm commitment to relationships can often be seen in an obligation to ethics over contract elements. Establishing a level of trust between you and your Chinese supplier is crucial for risk management. You can only expect an honest conversation when you have demonstrated strong leadership and goodwill.
Stability requires working with an honest, reputable company. There are some bad apples in the choices of suppliers in China, and the unsuspecting purchasing agents or business owners can find themselves in a difficult position when the promises and advertisements made online are just smoke and mirrors. Stability in quality means working with a manufacturer that has the capacity, tooling and expertise to handle your entire project, from the initial design and construction to labeling, packaging and shipping.
Choosing the Best of the Suppliers in China
Rather than struggling to find the right supplier for your business, trust the expertise of China 2 West. We&#;ve helped thousands of companies with their outsourcing needs and have developed crucial partnerships across Asia. Let us navigate your company through the crucial decision-making processes of working with suppliers in China and improve your company&#;s bottom line. Contact us today.
Sources
https://www.sourcingallies.com/blog/guide-to-finding-a-manufacturer
https://www.forbes.com/sites/allbusiness//01/06/sourcing-goods-and-suppliers-in-china-a-how-to-guide-for-small-businesses/?sh=4e50b776d34a
https://www.forbes.com/sites/greenbrandon//12/12/how-to-find-chinese-manufacturers-if-you-dont-know-anyone-in-china/
https://www.tradegecko.com/blog/supply-chain-management/10-ways-to-find-suppliers-you-can-trust
https://www.hays.cn/en/theinsidestory/supply-chain
https://www.stlouisfed.org/publications/regional-economist/april-/chinas-rapid-rise-from-backward-agrarian-society-to-industrial-powerhouse-in-just-35-years
https://asialinkbusiness.com.au/china/conducting-business-in-china/developing-business-relationships-in-china?doNothing=1