Today, China manufactures almost everything. Historically, the United States was the source of many devices, gizmos, and other products., Businesses now outsource primarily to factories in China rather than Taiwan or the country where a brand is based.
Because of this, it’s understandable Western consumers might wonder, “Why is everything made in China?” China has become known as “the world’s factory” because of its strong business ecosystem, lack of regulatory compliance, low taxes and duties, and competitive currency practices.
Table of Contents
Why Is Everything Made In China?
Lower Wages
China is home to approximately 1.41 billion people, making it the most populous country in the world.1 According to the law of supply and demand, wages remain low because there is a greater supply of workers than there is a demand for low-wage workers. Up until the late 20th century, the majority of Chinese were rural, lower middle class, or poor. However, internal migration flipped the country’s rural-urban distribution. These immigrants frequently accept low pay and multiple shifts in industrial cities.
China doesn’t follow (not strictly at least) laws related to child labor or minimum wages, which are more widely observed in the West.3 However, it appears that things are beginning to change as more provinces report raising their minimum wages in response to rising living expenses.
In 2021, Guangdong, China’s largest economic providence, increased its minimum wage by almost 10% to up to 2,360 yuan per month.4 The highest monthly minimum wage is 2,590 RMB in Shanghai, while the highest hourly minimum wage is 25.3 RMB in Beijing as of 2022.
Large-scale production, meeting seasonal industry demands, and even meeting unexpected spikes in demand are all made possible by China’s abundant labor force.
Business Ecosystem
Industrial production is not a solitary activity; rather, it depends on networks of suppliers, component producers, distributors, governmental organizations, and consumers who are all engaged in the production process through both competition and cooperation. The last 30 years have seen a significant changes in China’s business ecosystem.
For instance, Shenzhen, a city southeast of Hong Kong that is bordered by, has developed into a center for the electronics sector. It has developed an ecosystem to support the supply chain for manufacturing, which includes component suppliers, low-cost laborers, a technical workforce, assembly suppliers, and customers.
United States-based businesses like Apple Inc (AAPL) benefit from China’s efficient supply chains to keep costs down and margins high. The electronics manufacturer Foxconn Technology Group has a number of component suppliers and manufacturers in the area. Foxconn Technology Group is based in Taiwan. The takeaway of the components to the United States is often not economically feasible for businesses. to assemble the final product.
Lower Compliance
Manufacturers in the West are expected to adhere to a few fundamental rules regarding child labor, forced labor, health and safety standards, wage laws, and environmental protection. Several of these laws and regulations are notoriously broken in Chinese factories.
Historically, Chinese factories have employed child labor, have had long shift hours, and have not provided workers with compensation insurance.3 To prevent workers from leaving before the year is over, some factories even have policies where they are only paid once.
In response to growing criticism, the Chinese government has asserted that it is implementing reforms that uphold workers’ rights and offer more equitable compensation. Though change has been slow and rules compliance is low in many industries. Additionally, environmental protection laws are frequently disregarded in Chinese factories, allowing them to save money on waste disposal.
18 of the top 20 most polluted cities in the world are located in China, according to a 2019 World Bank report. However, during the initial COVID-19 shut-down periods, air pollution levels dropped in China’s largest cities.
Taxes And Duties
By eliminating double taxation on exported goods, China introduced the export tax rebate policy in 1985 to increase the competitiveness of its exports. Exported goods were subject to zero percent value-added tax (VAT), meaning they enjoyed a VAT exemption or rebate policy.7 Additionally, there were no import taxes imposed on Chinese consumer goods. Since the cost of production was kept low thanks to these lower tax rates, the nation was able to draw investors and businesses that wanted to make affordable products.
China And U.S. Tariffs
United States in July 2018 announced China-specific tariffs, targeting 818 imported Chinese products valued at $34 billion.8 This was the first of many rounds of tariffs that both nations imposed, costing the U.S. $550 billion. tariffs applied to the $185 billion in Chinese tariffs imposed on American exports of Chinese goods. goods as of February 2020.910
Upon President Joe Biden taking office, China’s Foreign Minister Wang Yi called for the end of multiple tariffs.11 There has been constant discussion of lowering tariffs during the Biden administration. In 2022, President Biden and U.S. officials both fought against the country’s rising inflation rates. A reduction in tariffs with China, according to Treasury Secretary Janet Yellen, may help ease domestic inflation concerns.
Read More: Is It Safe To Buy Products From China?
Currency
In order to give its exports a competitive advantage over products made in the United States, China has been accused of artificially depressing the value of the yuan. competitors. Through the buying of dollars and the selling of yuan, China controls the yuan’s rate of appreciation. The yuan was estimated to be undervalued by 30% against the dollar in late 2005.13
In 2017, 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.14 But in June 2018, when the U.S. economy began to slow, this trend flipped, and the yuan began to fall against the dollar. imposed tariffs on Chinese goods.
On Aug. 8, 2019, China’s central bank lowered the yuan to 7.0205 per dollar, the weakest level since April 2008.15 The value of the yuan to the United States kept declining throughout the COVID-19 pandemic. The average CNY to the USD exchange rate for the entirety of 2021 was 6.4529, reaching a high of 6.36 at the year’s end.
Does The United States Really Have A Disadvantage?
Going back to the initial question, we need to determine whether the American middle class is truly being harmed by outsourcing to China, as the original Times article would have us believe. Brett Swanson makes an effort to quantify the economic gains the technology sector has made in a Forbes Op-Ed. Although the majority of Apple’s manufacturing operations are outsourced to Asia, he contends that domestic economic activity in the U.S. is still growing. remains active, with higher-value jobs in the digital music industry, filmmaking, cloud computing, application development and the like.
Because of this, even though your iPhone is made in China, all of the software and services that run it are created, developed, or maintained in the United States., from iOS to the various App Store programs, as well as iTunes Match’s cloud servers.
And so it means that Made in China is not so bad after all, because the Chinese are gaining from their competitive advantage while the rest of the world can access American products. developed products cheaper, and Focusing on higher-value, information-oriented jobs is an opportunity for American workers. The United States is starting to appear. is benefiting from a competitive advantage, as well.
Conclusion
China can offer companies such low production costs for a variety of factors. The price of labor is one. Labor refers to those who perform labor, and wages in China are significantly lower than in most western nations. Due primarily to China’s enormous population of over 1.4 million people, the labor force, or all of the people who are able to work, is also enormous.
Other factors include the expense of leasing land, the cost of outside services like delivery and transportation, and the advantageous tax rates. It’s not surprising that China has become the world’s factory as a result of all of these factors working together to make it a haven for low-cost production.
Read More:
- Are Jordans Made In China?
- How to Source Products from Overseas?
- When Did China Industrialize?
- How Was Silk Made in Ancient China?
FAQs
Why Is The Chinese Economy So Strong?
China’s economic strength is boosted by a number of advantageous factors. It frequently makes sizable investments in domestic real estate and infrastructure. Low manufacturing costs are aided by lower wage requirements and favorable tax treatment. It also boasts relative supply chain efficiencies that entice international corporations.
How Much Money Does The U.S. Owe China?
As of April 2022, the United States owes China over $1.2 trillion.
What Country Has The Biggest Economy?
China has the second-largest economy in the world. The largest economy in the world is that of the United States, according to estimates from the International Monetary Fund for April 2022.’s $25.35 trillion was the GDP. By comparison, the IMF estimated China’s GDP at $19.91 trillion.
