Over 30%* of the world goods are manufactured in China. In every 10 articles made 3 of them are made in China. More than 70% of toys and half of the electronics made in China. China has become the first preference of many companies as there manufacturing hub, all of this has led rapuc economic growth and as of now China has become the second largest economy in the world and is on track to become the first.
So why is China become the manufacturing hub of India. There are several reasons for it.. Here are some of them-
China Does it Cheap
If you have an article for example a earphone you want to manufacture, you ask a US company to manufacture it, it will give you a price of $100 dollar to manufacture it, if you go to European factory, they will do it at $400. If you go to a Chinese manufacturer, you can get the same earphone of the same quality below $80. Which one will you prefer? Obviously the Chinese one.
How is China able to do it cheap?
Economy of scale: China has a huge population of 1.4 billion people, which means a large domestic market and a massive workforce. This allows them to produce in bulk and lower the unit cost of each item. They also have access to abundant natural resources and raw materials, which reduces their dependence on imports and lowers their production costs.
-Government support: The Chinese government plays an active role in supporting its manufacturing sector, by providing subsidies, tax breaks, loans, infrastructure, and favorable policies. The government also controls the exchange rate of the yuan, which keeps it artificially low and makes Chinese exports more competitive in the global market.
-Low labor costs: The average wage in China is much lower than in developed countries, which means lower labor costs for manufacturers. The minimum wage in China varies by region, but it is generally around 2,000 yuan ($300) per month. In comparison, . Moreover, Chinese workers often work long hours and overtime, sometimes without proper compensation or benefits.
Business ecosystem
If anyone wants to manufacture anything, they will need a network of suppliers, component manufacturers, distributors, government agencies. Take Shenzhen for example. For those who don't know Shenzhen, is the tech capital of the world big tech suppliers like Foxconn are based in Shenzhen. Shenzen has a network of Supplier and manufacture which makes a seamless chain for production. Chinese policies also support small to large scale startup and initiative in terms of manufacturing products, we will read more about government policies in later part of the article.
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. (Credits:investopedia)
Taxes and Duties
The export tax rebate policy was initiated in 1985 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.7 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. In July 2018, the U.S. announced China-specific tariffs, targeting 818 imported Chinese products valued at $34 billion.8 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 2020.910
Upon President Joe Biden taking office, China’s Foreign Minister Wang Yi called for the end of multiple tariffs.11 Throughout the Biden presidency, there have been ongoing discussion of easing tariffs. As the United States continued to battle rising inflation throughout 2022, 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. (Credits: Investopedia)
Conclusion
These are some of the reason of why China is known as the manufacturing hub of the world
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