China has gained a reputation as the “World’s Factory” because of its massive amount of factories and, subsequently, the huge amount of products that get exported from there. Since they were accepted by the World Trade Organization in 2001, they have been producing 28% of the world’s output when it comes to manufacturing.
Because of practices such as excessively cheap labor, an abundance of willing workers, and lenient tax laws, American manufacturers have been rushing to get their hands on this cheap workforce. So, why does it seem like everything is made in China, and what makes it so cheap to manufacture products in China? Keep reading as we explain this in detail.
So Why is Everything Made in China?
1. Lower Wages
China has a different minimum wage, and manufacturing employees can expect around $4 an hour. Compared to the US, where the average pay for manufacturing is over $15 an hour, Chinese workers are working just as hard for far less. With these lower wages, saving money is a big incentive to make their products in China.
According to some estimates, America lost 2.4 million manufacturing jobs to China in 12 years because of the lower cost of manufacturing over there.
However, even at the risk of beatings and torture, wages have finally been starting to rise about 15% a year over the last four years. Still, the average Chinese factory wage is much lower than the minimum wage in America.
2. Chinese Labor
Chinese residents are conditioned to work harder from an early age. Through their government and families, the Chinese are expected to work very hard at everything they do. An example is a six-day workweek that is common in the majority of industries in China. Also, because of the low wages, Chinese workers are more willing to put in overtime so they can make more money. Most workers need that overtime for basic necessities and will work it eagerly.
3. No Unions
It is illegal for workers in China to set up independent unions. In America, Unions help settle disputes between workers and employers. Unions often help to set standards for equal pay, safe working conditions, and benefits. There is no such organization in China. Unions in American manufacturing companies have helped to raise wages for workers, they have helped to offer insurance, and provided more paid time off. These extra benefits, no matter how essential, often end up costing the company more. These are costs that aren’t attributed to Chinese manufacturing jobs, so again, prices for the same goods are cheaper.
4. A Massive Labor Pool
Continuing along with the subject of labor, not only do Chinese factories pay much less than American industries, but there is a massive labor pool to constantly pull employees from. China is the most populous country in the world. With such fierce competition for employment, people are willing to take smaller wages just for the opportunity to work. So the huge labor pool works hand in hand with labor costs to keep wages low and, in essence, keep manufacturing cheap in China.
As far back as the early 1980s, hundreds of millions of people left their rural roots to move to the cities where the factories were so they could find jobs. Smaller, less populous countries would have run through their willing and able workforce much sooner. China does not have that problem because of its huge population.
This seemingly never-ending labor pool helps when China gets large orders that would be difficult to fill at smaller factories or they get hit with seasonal demand.
Think about America, especially when the pandemic hit. Many companies were so desperate for workers they offered sign-on bonuses, increased wages, and other benefits to attract willing candidates. China has not come across that problem because there are millions more people willing to work for much less.
5. Worse Working Conditions
Some factories have no heat, no air conditioning, or worse working conditions. Workers come in wearing multiple layers of clothing and big jackets because there is no heat during the cold winters. When these factories don’t pay for the added electrical cost of heat, they can charge less for manufacturing.
China also has a more lax attitude toward worker safety. Here in America, we have organizations like OSHA that check to make sure there are plenty of safety measures for employees, China doesn’t have much safety oversight.
Sweatshops and bad working conditions contribute to lower manufacturing costs. Some Chinese factory workers have claimed that people in prison are treated better than employees at certain factories. Workers are sometimes forced to live on-site and are not able to leave.
6. Governmental Interest in Industrial Policy
Cheap labor can be found in many other countries besides China, but China has something these other countries have not been able to create successfully. China’s government is continually focused on developmental policies. This means that the government is heavily invested in the industry’s infrastructure. The government helped to move China away from agriculture and get into industrialization. The government invested a lot of money into this structure for advancements in manufacturing so they would be a world superpower when it came to exporting manufactured goods.
7. Many Industrial Clusters
China is able to create clusters of factories in smaller areas. For example, Shenzhen is a hub for electronics. In these clusters, one factory may create computer chips, another creates the cords, and another creates the housings, while the last put all these parts together. The individual components are so close together that the end product gets produced much faster. It doesn’t take days or weeks to send all the components to a facility that puts these components together to create the end product. The supply chain is linked much closer, thus reducing travel costs and time.
8. Currency Manipulation
China works to keep its currency undervalued by 30% to 40%. This tactic makes everything China exports 30% to 40% cheaper than other American competitors. The lower China values its yuan, the more attractive labor and manufacturing are to trade investors.
9. Fewer Workplace Regulations
American manufacturers have to comply with basic guidelines when it comes to worker safety, health, child labor laws, and environmental protection. There are many agencies and organizations that help to look out for workers’ health and safety and provide laws for fair work and wages; unfortunately, each of these rights ends up costing the company. Chinese factories have little oversight in regards to these issues if they have these guidelines at all.
Many Chinese factories still employ practices that have been long outlawed in America. Although it can be difficult to prove, there are still areas suspected of practices such as using child labor, forcing laborers to work extended shifts, and some factories have policies where workers only get paid once a year, so they don’t quit before the year is done.
The Chinese government claims to be working to eradicate these barbaric working conditions, but there are so many factories it makes this change a very slow process. This is just another one of the many reasons to buy American-made products where you know workers and the environment are being respected.
10. Less Oversight Concerning Pollution
China does have its own version of the EPA, but these laws are rarely enforced, and environmental protection laws are largely ignored. Chinese companies don’t care where or what they dump into the ground, waterways, or the air. There are several studies that cite China as the most polluted nation in the world. The World Health Organization estimates that over 750,000 people die every year as a direct result of pollution in China alone.
Since these factories—especially ones located at the local level—largely ignore these environmental policies, they don’t have to spend any money on waste management costs. American companies have plenty of regulations concerning the disposal of waste byproducts. Sometimes they have to hire specific companies that properly dispose of byproducts, or the waste has to be contained or treated with certain compounds to keep from damaging the environment. This cost can be significant, and most of China largely ignores this process.
Next, there is the cost of taxes and duties. This tax was introduced in 1985 as a way to increase the competitiveness of Chinese goods. Basically, anything that is imported into China that will increase the value of goods produced in China is taxed. These taxes generally average around 13% to 17%. This is while Exported goods receive no VAT tax. That means if America sends raw materials to China, we are charged up 17% extra taxes, but when China takes those materials, manufactures an end product, then sends it back to us, they pay no VAT to export it. We get charged more to send products overseas but don’t get charged back so they can produce cheaper goods.
12. No Workers’ Comp Insurance
Workers comp laws help to protect American workers if they are injured while on the job. Every company with two or more employees is required to carry workers’ comp insurance. This insurance protects both the worker and the employer. If someone is injured on the job, workers’ comp insurance will help to cover medical costs, disability benefits, lost wages, and other items. In China, there is no workers’ compensation insurance. They don’t have to pay that extra cost every month, and if an employee is injured while on the job in China, they rarely, if ever, receive any kind of compensation.
Dumping is a national strategy China uses to gain control over the market or flat-out destroy competition. How this works is China will manufacture a product at a cost that’s lower than what they charge at home or even below the cost of production. They then export massive amounts of this lowered-cost product to other countries to flatten the competition. Often these competitors can’t stay in business and have to fold. Then China has control over the market and can charge what they want to in order to make up for lost profits.
Here is a fictional example. Let’s say there are five different companies in America that manufacture coffee makers. If they charge $50 for these coffee makers, then China can come in, and dump massive amounts of coffee makers onto store shelves for $20; which one is going to get bought more often? The sales are going to decline for American-made coffee makers to the point they can’t compete and possibly go out of business.
Neomercantilism is a policy that strongly encourages exports from a country, such as China, while at the same time discouraging imports. This kind of strategy helps to control capital movement throughout the country. The government is then in control of much of the money coming into and going out of the country. Neomercantilist policies serve to increase foreign reserves, which strengthens the government and the fiscal part of the country. It’s harder to compete with countries that employ these policies.
15. Lower Quality Goods and Materials
Goods made in countries that have fewer workplace safety standards, push productivity regardless of employee health, and don’t have strict quality control standards are going to produce lower quality goods. Their focus is on quantity. How much product can they get out in a day? American goods have quality standards that they have to adhere to, have better safety standards, and Americans, on the whole, put pride in their work. We are proud of what we create.
Lower quality goods are going to be cheaper to manufacture. Take shoes, for example. When you buy your kids a pair of generic shoes, they will probably last about a month before the seams start to split, the sole starts flapping, and the shoe is falling apart. Go and spend a bit more on a good quality shoe, and you’ll get much more life out of it. It may seem like you are saving money by purchasing the cheaper option, but they have to be replaced much more often, leading to more money spent in the long run.
Have you ever purchased something from Wish or eBay? For example, you see a new pair of pliers that look similar to Channellock’s (which are made in America, by the way). You purchase them because, at that price, you simply can’t pass them up. We all could use an extra pair or two “just in case.” Once they arrive—several weeks later—you quickly get disappointed at the poor craftsmanship, or possibly the handle breaks off when you use them. Knockoff brands look like the name brand equivalent but are manufactured with lower quality materials, and they don’t spend extra money on advertisements.
17. Overall Manufacturing Cost
With all the above-mentioned reasons added together, the overall manufacturing costs for Chinese-produced goods cost a fraction of what the same product could be made by American companies. To put this in terms of dollars, in China, it averages just over $3 an hour to manufacture goods, whereas the same goods will cost a United States manufacturer about $40 per hour. As you can see, these numbers are quite appealing to owners of manufacturing companies.
18. Expansion Capabilities
There are many more steps to building a manufacturing company or even expanding on an existing building. Some of these steps include:
- Filing proper paperwork such as building permits.
- Legal fees
- Meeting zoning requirements
- Construction costs
- Equipment purchasing or updating
- Taxes and fees
- Hiring employees and then spending the time and money to train them
By using Chinese facilities, many of these steps are lessened or completely avoided. This way, the product gets to the market much sooner and with drastically cut costs. China doesn’t have the same zoning laws. They also often use outdated equipment and have less oversight of manufacturing processes and workflow.
19. Less Quality Control
Many of China’s factories don’t have quality control measures in place. For instance, if an appliance product doesn’t work anymore due to a fuse melting from a power surge, the factory just replaces the fuse. It rarely investigates why a surge happened, preventing it from happening again. They are mostly focused on higher output in less time. Chinese manufacturers often don’t have the time or desire to search for the cause of the malfunction.
In American factories, there are often trained employees who only inspect products for quality control issues, often from various points of construction. When they find an issue with the product, they halt production until the issue is corrected. This is an added cost American factories have to factor in, but most Chinese factories don’t have to rely on it. They are paying training and salaries to employees that do not help to manufacture products.
Many of the reasons it’s cheaper to manufacture in China, such as cost of labor, regulation, and quality control, don’t hold true in countries like the United States, which are held to high standards. Since the alternatives are far more involved, companies simply opt to make their products in China.
That does it for this article, we hope we thoroughly answered the question – why is everything made in China? From lower labor costs, substandard working conditions, outdated business practices, lower quality goods, and much more, big company owners often can’t resist the potential profits from goods manufactured overseas. We understand that it’s not always practical to purchase everything from American-made companies, but every dollar spent domestically truly helps in more ways than most people imagine. If, after reading this article, you’re more proud than ever to live in a country that cares about its people and the environment, check out our article on American flags made in the USA and fly your new flag with pride.
Hi, my name is Kevin and I’m from Pittsburgh, Pennsylvania. Choosing products made in America is important to me because it supports local economies, creates jobs, helps the environment, and ensures ethical labor practices. I also find that American made products are usually of higher quality so although they’re a little more expensive, you save money in the long run. Before starting this website I was in the USMC infantry and nowadays I work on this website as a hobby.