A lot of business owner and startups may wonder: why is it cheaper to manufacture in China?
Why it is a lot cheaper to manufacture products in China since there is a lot of options: such as India and Southeast Asian countries like Vietnam and Thailand.
But, Why many companies still manufacture their products in China?
It is Cheap.
The topic today is why is it cheaper to make your products in China?
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*Lower Labour cost.
As all we know, China is a nation with the biggest population in the world. The labor cost, though on the rise, is still pretty low compared to other developed countries, for there are more and more people are stilling flooding to big cities from rural places seeking for better jobs. Therefore, a large labor supply keeps the price down.
Let’s take fashion jewelry manufacturing for example.
How much you need to pay to employ a Chinese jewelry maker?
I can honestly tell you: the price is less than $30 per day. But, some fashion jewelry required higher tech or skills will be more expensive. You have to pay $40 per day.
How much it will be in the USA or in EU countries?
I never went to the USA, So I have no idea. Some people say you have to pay $7-$8 dollars in other developing countries. In the USA, I guess you have to pay at least $100 per day.
*Ability to do large scale Production
In the fast-changing business world, competition is everywhere.
For examples, Nike wants shoes, Adidas Wants shoes also, UA also wants shoes. When all three big orders are put together, large scale production becomes not only possible but easier.
There is a big market left for products out there Chinese suppliers are able to lump many orders of the same thing together to have an unbelievable level of economy of scale, which pushes the costs way below EU and American Standards.
* Cheap Raw Material
Some people think that Raw material of the products is Cheap in China because of 2 reasons.
1 China itself is able to produce most of the Raw Material.
2 The Raw material is cheap because of the high demand.
3 Effective routing of raw material.
A guy on Quora mentions that ”if you import a lot of raw Material from broad, it will cost a lot of money, but China has a very special weapon: infrastructure. Since the demand for products (mostly commodities) drives demand for raw material, that drives demand for infrastructure to route these raw materials effectively and cheaply. Unlike India, China has that infrastructure and system, and so raw material can flow in large batches and routed effectively to minimize cost.”—Damon Lam
* Chinese Government Policy on Exporting
In order to export more products around the world, the Chinese government only has a VAT taxation system which allows taxing only value-added services.
Therefore, the production is a lot cheaper compared to other nations.
On the other hand, the US and some other developed countries do not have and low import duty for Chinese commodities.
* The Currency
As all we know, Chinese Yuan, is 6.5 times lower than US $, which means that for a price of US $, some companies in China are still profitable.
You maybe have found some talks on Google that some countries like India and Vietnam will replace China as the world’s factory.
But，these countries are lack of infrastructure. So, their cost will be much higher.
Why? Most of the products are made to export to other countries. Therefore, a great set of nationwide infrastructure plays a very important role in reducing product cost.
I guess in the next two decades, China is still the cheapest country to produce your products, but other countries are catching up. But, there is a long way to go to other countries to be the next world’s factory.