How does China Manufacture Goods So Cheap?

It is no mystery that China is the factory of the world. They manufacture goods so cheap that they
capture almost all of the world’s market. Their price is so cheap that the price of a product in
America after adding all the shipping cost and other things are cheaper than the products
manufactured locally in the USA. But have you pondered the question of how China manufactures
products so cheaply? Behold today we are going to answer that question.

The first big reason how China can manufacture products so cheap is that they have all the resources
needed to manufacture the product in their country without needing to import from other
countries. Here are a few other reasons how China manufactures goods so cheap:

1.      China has a population advantage. As of 2020, China has about 1.43 billion people, or about
18% of the world’s population. The average income of a Chinese is about $15 k in 2020. It is not high
compared to the developed countries but it is extremely high compared to its peers, BRICS. While
the average income is quite okay, most of the money is in the hands of millionaires and billionaires.
So many of the Chinese are still poor and the industries can manufacture goods cheaply.

2.      China has almost zero environmental concerns from industries. In Europe and other developed
countries, there are many environmental concerns. So, the company has to pay a lot of money for
the environmental damages they have done which adds to the cost of the product but things are
different in China. The government does not care about the environment and they don’t take any
actions against the environmental pollution caused by the industries which lower the cost of a
product substantially.

3.      The average minimum wage in China 2020 is around $1.52/hour while that of the USA is
$7.25/hour. That’s a difference of over 5 times. So, the labor cost in China is five times cheaper than
it is in the US. Moreover, the Chinese government exempts most export products from VAT which
gives the Chinese manufacturers an advantage over manufactures of other countries. Again, there is
an export rebate i.e., a subsidy for exporting goods to other goods. This means that the
manufactures can sell at prices lower than the cost price and still profit from the export rebate.

4.      Manufacturing volume in China is huge which lowers the cost of a product. Here is an example.
If you are manufacturing 100 products and you want to make a handsome profit from it, you will
make a profit of say around $100/product which will increase the price of the product. You will want
to minimize the price but you have no choice as you need that much money for your livelihood. But
if you manufacture 100000 products, you can make a profit as low as $10/product and still be well
off. Moreover, your product would be cheaper as the profit margin per product is less than if you
manufacture only 100 products. And your product would sell faster because of lower price. This is
exactly what China does. They play with quantity. They manufacture goods in huge bulk quantity and
this lowers the cost substantially. This results in a lower price of the product.

5.      Chinese manufacturers choose quantity over quality. It’s not so shocking. Everyone knows that
Chinese products are of low quality! Chinese manufacturers manufacture goods in huge quantity
and to further lower the product cost, they make low-quality products that last only for a short time.
Their argument is this: “If we make high-quality products, people will use that product for a long
time and we will make less profit. So, to make more profit, we need the customers to spend their
money more frequently. To make the customer spend money more frequently, they lower the price
of the product and make the product quality lower.” Nice logic.
6.      Last and the most important factor in making a product price lower. China has lower spending
on R&D. This is because China mostly copies from other developers. Suppose Apple gives the
blueprint of an iPhone to a Chinese company for manufacturing the company. The Chinese company
will make the iPhone and they will wait for some time. After that, they will make a phone which is
like the iPhone but at a lower price. The reason for the lower price is that they do have not to spend
anything on R&D. This will shock you but R&D consumes lots of money and is the main reason why
flagship phones are so expensive. Once the technology becomes common, the price drops
exponentially and that’s why phones with similar power like that of a flagship which is launched after
a year the flagship phone was launched are so cheap.

Those are the reasons I think how China builds goods so cheap. If you know of any other reason,
please let us know.