Read about the 5 impressive reasons why China became the world’s supplier.
China has been the go-to supplier for almost every product available in the market, with an impressive manufacturing growth that has raised questions among people due to their somewhat suspicious work methods and regulations. This article analyzes the top 5 reasons why this country has become a compelling manufacturing juggernaut, in different topics and categories with proper and useful information concerning facts and statistics.
1. Low Labor Costs
As many people might already know, China has one of the lowest labor cost rates in the world and a high job demand from its citizens, meaning that people are willing to work for less money than the average worker. This is known as the Lay of Supply and Demand, which explains the relationship and interaction between sellers and buyers of the same resource, diving into the topic of the established price of a product and the willingness of people to purchase it, concluding that when the price increases, people are capable of supplying more and demand less, as well as vice versa when prices fall. With the addition of many rapid prototyping specialists in China, products can be designed and manufactured extremely fast, making it very fast and efficient to take a product to market.
Furthermore, China’s almost entire population was rural and lower-class workers, therefore the expansion to manufacturing centers provoked their low-labor costs due to their pre-existing financial condition. In addition to this, China does not have many established or clear regulations about child labor or minimum wages, which are two major contributors to their rapid factory empowerment. According to Inkspot Business, “in 1980, the average annual salary in China was between $416 to $508, while the average American worker’s salary was 40 to 50 times that amount. This huge wage disparity was part of the draw for multinational companies to relocate to China in the hopes of finding higher profit margins.”
2. Fewer Taxes And Duties
Not only does China execute the role of manufacturing juggernaut on its own part, but foreign companies choose this location to relocate their factories and get a higher profit due to China’s taxes and duties, which are nothing similar to the US or any other country. China’s tax rebate policy was initiated in 1985 as a way to attract investors, which was followed by an exemption to their products being charged with import taxes. This strategy helped keep production costs low and served as a beacon for new and pre-existing companies that were looking to maximize their profit, contributing to China’s rapid and impressive manufacturing growth.
3. Regulations Not Followed Properly
Chinese factories are known for not complying with proper regulations and not following the standard labor rules that the majority of the countries do stick to. There are concerning facts about child labor in China that include a correlation with their place of residency, school attendance, and environment. A study published in 2018 titled “Child Labor in China” exposed that “child labor participation is positively associated with school dropout rate”, as well as children living in rural areas are more likely to work and those coming from a household with more adult is less likely to work.
4. Work Culture
The population’s mindset towards work has helped China become a manufacturing juggernaut without a doubt. Since childhood Chinese citizens are educated with the values of work, thus when they achieve the proper age for starting such tasks they are able to confront it and carry out the jobs needed. Although they spread a compromised work culture, the established workday is 8 hours a day with a maximum of 44 hours a week, but these regulations are not followed properly, which caused a dysfunctional process that many workers grew accustomed to, reinforcing the high job demand for less payment obtained.
5. Currency Devaluation
The fifth reason concerning China’s manufacturing growth has to deal with their currency devaluation. The government artificially depresses its currency which provides them with economical advantages for world exportation. What’s more, this method is used to attract investors and foreign companies due to the lower costs of production and establishment, as well as import and export rates.
The Bottom Line
China has impressively increased its position in the market for being the best and most profitable manufacturer in almost every product available used by the world’s population. Many things have been said about their supposed dethrone but the facts and statistics suggest that the country is not near their manufacturing decrease.