Why everything made in china

As a result, firms are able to cut their production costs dramatically and this in turn allows them to increase supply. With an increase in supply firms reduce their prices, meaning that consumers all over the world all benefit from the cheap production that China has to offer.

There are many reasons why China is able to offer firms such low production costs. One is the cost of labour. Labour means the people who work, and in China wages are much lower compared to most western countries. Other reasons include the cost of renting land, costs of third-party services such as delivery and transport, and the favourable tax rates. With labor costs no longer an issue, more mechanization and a tendency to relocate production, could the future see Western companies putting more pressure on China to avoid possible sanctions and blockades at home and to try to bring value closer to the countries that design or consume their goods?

And if so, within what timeframe? This is a BETA experience. You may opt-out by clicking here. More From Forbes. Nov 11, , am EST. In addition to its low labor costs, 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. Here we review each of these key factors.

China is home to approximately 1. 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 willing to work many shifts for low wages. As of Jan. 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.

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 in the last 30 years. 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.

Manufacturers in the West are expected to comply with certain basic guidelines with regards to child labor, involuntary labor, health and safety norms, wage laws, and protection of the environment.

Chinese factories are known for not following most of these laws and guidelines. Historically, Chinese factories have employed child labor, have had long shift hours, and have not provided the workers with compensation insurance.

Faced with mounting criticism, the Chinese government has claimed to institute reforms that protect workers' rights and provide for fairer compensation. However, compliance with the rules 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.

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. 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. In July , the U. 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.

China keeps a check on the appreciation of the yuan by buying dollars and selling yuan. However, this trend reversed and the yuan weakened against the dollar beginning in June when the U. On Aug. 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.

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