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?'
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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 .
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.
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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.
Any Amazon seller will tell you that the risk of finding dishonest Chinese supplier or getting stuck with a poor-quality shipment is high. Whether you delve into an online B2B marketplace, an online supplier directory or visit a tradeshow or wholesale market, you'll need to watch out for the few bad apples. In this post, we discuss your sourcing options and recommend the best way to find a dependable supplier for long term relations.
China's largest import/export convention is held twice a year and covers virtually every industry that makes physical products. It is so huge that it runs in three phases:
Phase 1: Electronics, machinery, building materials and chemical products
Phase 2: Consumer goods, home décor and gifts
Phase 3: Textiles, recreational products, office supplies, shoes, medical devices and health products
You can attend for free but once you're in, be prepared for what's in store. Here's a teaser:
- The sales representatives can speak basic business English. Some are hired for the fair and may not work for the company. You'll learn about MOQs and some product details only.
- You can hire an interpreter at the fair at 400-500 RMB or $60-$75 per day. Service charges are higher for minority languages.
- Suppliers bring samples so you can see and touch the product to get an idea of quality.
- Low prices and not-so-great quality go hand in hand. Unless you're willing to pay more than the advertised price, you won't see the quality you want.
- After you speak to suppliers, they will ask for your business card to follow-up with you after the fair. Some Amazon sellers are hesitant to give their business cards to every vendor they meet out of a fear of their details being sold to other vendors. For etiquette's sake, they may pass out fake cards to give to everyone except the suppliers they're interested in.
The Canton Fair is HUGE. Find the list of exhibitors and their booth location on the trade show's website in advance to save time and energy. The same suppliers participate each year, so novelty is missing. Don't expect to see innovation either ' the companies with a newer design or function may show prototypes and only be looking for distributors rather than OEM or private label manufacturing.
Disclaimer: Yiwu wholesalers are trading companies, not manufacturers.
The Yiwu Market in Zhejiang is open all year round. It has 40,000 shops and should be on your radar ONLY IF you want to source bags, shoes, textiles, watches and accessories at low prices. This is because the marketplace is heavily tilted towards buyers in India, Africa and the Middle East, and therefore their products don't reflect the regulations and safety standards in the EU or USA. If you want toys, cosmetics or medical devices, you should look elsewhere.
Here, prices can go as low as you want but quality will go up or down accordingly. If your target market is highly segmented and you're selling on multiple channels or distributing to other sellers, Yiwu Market can be an option. Some sellers use Yiwu as a complementary supplier for their existing suppliers when their stores are empty and need filler products.
Yiwu wholesalers work with factories in Zhejiang and Jiangsu. An advantage is that you can buy products off-the-shelf on the spot or have them shipped to your location in bulk.
If the goods you want aren't ready for sale, make sure you're clear about your quality requirements so that your supplier can place the order with a matching factory. Bickering on price will only result in the factory using cheaper materials which results in adjusting quality downwards.
You can hire a purchase manager to simplify sourcing. Yiwu agent services typically include picking you up from your hotel and driving you around the market to meet wholesalers, negotiating price and order terms, and coordinating procurement, including collecting different orders in one shipment. Agents are not responsible for reviewing quality control at factories.
You will bump into fake products at the market. Any famous brand you see at a Yiwu shop is likely a knock-off. Not to knock on Yiwu but it should have a place in your sourcing strategy only for equivalent products at low prices.
You want to find the actual factory, not a trading company posing as one.Trading companies can pose as manufacturers, making it essential to know who you're dealing with. Here are tips to differentiate correctly:
- Most factories make a specific type of product or focus on a specific type of manufacturing process to keep costs and overheads low. A company that advertises a range of items is more likely to be a middleman rather than a manufacturer.
- Trading companies generally have business names that appeal to global buyers. On the other hand, manufacturers usually include the town or city they're based in within their company name.
- Check the company's business card for the factory address. If the location is a downtown area or on the 20th floor of a building, you may be looking at a trading company. See if a separate office address is mentioned ' it could be their sales office and located in the city.
- Trading company websites are in English to cater to foreign buyers. Small Chinese manufacturers may not even have a website, or it may be a basic site with inadequate Chinese to English translation, although bigger manufacturers may have sophisticated sites. This could be yet another clue to the company's true identity.
- Ask for the company's quality certificate (CE, UL and other certifications). A factory will be listed as an 'owner' on the certificate.
These checks become necessary when you seek out China suppliers without help from a sourcing agent that not only cooperates with but has strong relationships with Chinese factories. Agents are a safe bet to source quality goods in a hassle-free way.
3. B2B marketplaces - China Suppliers online, be wary
Your search for Chinese suppliers can start online. Alibaba, Made in China and Global Sources are all popular websites to find suppliers and manufacturers in China. As always, you'll need to be wary of a few things in order to avoid getting scammed on these B2B marketplaces:
- Resellers may advertise as manufacturers, which isn't much of a problem if you're sourcing toys, clothes, accessories and cheap electronics. For products that must be made to specific technical requirements, only a manufacturer will do. So, if the product you will sell is made using a manufacturing process like metal stamping or plastic injection molding, you will need to verify the supplier's capabilities early on. These websites rate their suppliers, but nothing is 100% transparent. For instance, suppliers who become premium members on Alibaba with an annual fee can get gold supplier status, which increases their visibility on the site but doesn't mean anything as far as ethical behavior and quality levels are concerned. So, the vendors that get the most exposure on Alibaba ' the ones who may pop up when you search for their product category ' must still be vetted.
- After you've contacted a supplier, you can request samples and place your order. But the process can be lengthy, taking weeks rather than days from initial contact to receive samples.
- Given the back and forth with the supplier, you'll wish that both of you shared a common language. The communication barrier makes explaining your exact requirements via or live chat quite challenging.
- As major B2B sites offer an easy platform for just about any Chinese supplier to showcase before buyers, this over saturated venue may incline many quality vendors to opt out.
Other China supplier directories include:
· DHGate, which is great for buying products in bulk. Over two million sellers and 26 million businesses and individual buyers use the website. A 'Superior Suppliers' tab connects you to companies the directory deems reliable. DHGate offers guaranteed refunds and escrow protection on every order.
· The Hong Kong Trade Development Council (HKTDC) is a statutory body that develops Hong Kong's trade, and organizes international conferences and exhibitions. Its supplier directory lists fewer companies compared to other directories.
A reminder:
- Trading companies can pose as suppliers on online directories. If they pay a fee, they will rank higher in search results regardless of feedback and ratings from buyers.
- Finding reliable suppliers on B2B marketplaces can be daunting. You need to separately screen each supplier, which should ideally involve a visit to their factory.
- It is easy to get drawn to the lowest prices or MOQs. Rock-bottom prices come at the cost of product quality. Costs can change once production begins, so the massive price advantage is not set in stone. If the supplier has never made the product it has advertised on the site, quality will suffer. Find out the market price/price floor of the product ' offers that are 20%-30% below this price should set off a warning bell.
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A China sourcing agent is ideal when you need products manufactured to exact technical specifications. Agents based in China visit factories to inspect quality controls closely. After you've greenlighted mass production, the agent will visit the factory again to inspect raw materials and even check the first few batches for quality.
Agents with boots on the ground in China are well-versed in Mandarin, so you can overcome the language barrier and communicate your requirements clearly. Chinese suppliers are very careful about what they share ' they're unlikely to inform you about production delays or ask questions if they aren't sure about your product specifications. Sourcing agents can be helpful here as well, ensuring that the supplier is on the same page as you before production begins.
When you partner with an agent, you get comprehensive support throughout the sourcing process. If you want to get it right the first time and build along-term relationship with your supplier, engaging a sourcing agent is the right way to go.
A Google search of Chinese suppliers may seem like a logical first step for new Amazon sellers. Chinese suppliers have business websites and a presence on social media. Generally, they have generic names like China Direct Supplier or China Wholesale Market on social channels. Some of these suppliers may actually be agents offering to help you find suppliers.
As mentioned earlier, many of the supplier websites in English are traders rather than manufacturers. If you find a manufacturer site that appears genuine, go ahead and make inquiries. You may get a quick quote, obtain a sample without waiting long, and find yourself on a plane to China for a factory visit.
Search using specific keywords for products or location, such as 'Langfang furniture suppliers' or 'Shenzhen electronics products'. A Google search using key terms is also a quick way to find relevant supplier pages on directories and B2B websites.
Most Chinese use Baidu, and you can use a translation tool to find leads or see if those suppliers are on Google or Alibaba, and follow-up if they look promising. You may find more corporate details or information such as whether they've been involved in legal disputes.
Your business contacts may be able to connect you to Chinese suppliers or know someone who can guide you along the way. Also check with local trade bodies and Chambers of Commerce. It's not just what you know, it's also who you know.
Your supplier is your business partner
There will be some initial hiccups, and your relationship may weather ebbs and flows but staying on good terms with your supplier will help your business. It's a lot easier to overcome language and culture barriers when you go through a sourcing agent. But you can manage on your own if you're willing to travel to China every now and then, and really invest in the relationship.
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Sourcing Allies is a team of expert China sourcing agents that has helped western customers manufacture and source products from low-cost regions since .
For more on China sourcing visit our website or write to us at .