Why Is China Worlds Biggest Manufacturer – 5 Strong Reasons!
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China, we know, is the world’s most populated nation. It relies solely on its labour force and utilizes its resources very well, making it depend less on other countries as it produces its products. Nigeria, in particular, is among the highest consumers of Chinese products, which is why we see most of the products in Nigeria tagged “made in China”.
The economy of China flourishes as a manufacturing powerhouse which makes some to think that omnipresence of the Chinese products is a result of low production due to high manpower, but that is far from it.
China is now recognized as the “world’s biggest manufacturer” because of its low taxes, the solid business community, no regulatory compliance, and competitive currency practices. In this article, we are going to consider those factors that make China to be considered the world’s biggest manufacturer.
Lower Conformity
Western manufacturers must usually abide by certain rules and guidelines that govern compensation insurance, child labour, health and safety standards, and involuntary labour. Still, China is immune to such laws and guidelines as Chinese industries have used child labour in manufacturing.
They have not made provisions to give insurance compensations to workers, and they have long shift hours of work. Some of these industries or factories have even devised a strategic plan to prevent their workers from quitting their jobs before the end of the year by making it a matter of policy to pay their workers once a year.
Chinese factories have been able to reduce the cost on waste management by ignoring environmental laws governing waste management.
Competitive currency practices
China puts in great effort to maintain the value of the Yuan by constantly carrying out a routine check on the appreciation of their Yuan by purchasing USD and selling Yuan. Because of this strategy adopted by China, it was accused of depressing the value of the Yuan to give its exports a lead over similar goods produced by the United States.
In late 2005, the yuan was estimated to be less valuable by 30% than the dollar, but in 2017, it appreciated by 8% against the dollar. It later depreciated in 2018 after United States tariffs were imposed on Chinese goods, reducing it to an exchange rate of 7.0205 per dollar by the Chinese central bank, China’s lowest exchange rate since 2008.
Lower Wages
China has population is 1.39 billion, making it the world’s most populated nation. Following the law of Supply and Demand, we can see that there is a high supply of labour while there is a low demand for low-wage workers which makes the wages to remain low.
Additionally, many Chinese residents were from rural and lower settlements until internal immigrants changed the situation of things by accepting to work many shifts for lower wages, which kept workers’ wages low.
Fortunately, the situation is changing as statistics have shown that some factories in some cities in China have increased their wages per hour or month. In January 2020, the wages per hour or month were 20.3 yuan ($2.91) and 2,200 yuan ($315.5), respectively. In Shanghai, the wage per hour is 22 yuan ($3.16), while the wage per month is 2,480 yuan ($355.70) based on the exchange rate of 1 yuan to $0.14.56.
Business Ecosystem
Industrial production solely relies on distributors, suppliers, consumers, component manufacturers, and government agencies involved directly or indirectly through cooperation during production. China’s business ecosystem has experienced positive developments for the past three decades.
Let’s consider Shenzhen, which shares the same boundary with Hong Kong, has developed to be the centre for the electronics industry.
A Taiwan-based electronics producer by the name of Foxconn Technology Group also has manufacturers of parts and multiple suppliers at nearby locations; even Apple Inc. takes advantage of the efficiencies in China’s supply chain to keep high margins and low costs.
Taxes and Duties
The export tax discount policy was set up in 1985 by China as an avenue for boosting the competitiveness of its exports by getting rid of double taxation on exported goods. Exported goods were subject to zero per cent value-added tax (VAT), meaning they enjoyed a VAT exemption policy.
Additionally, consumer products from China were free from any import taxes. These lower tax rates helped to keep production costs low, which enabled the country to attract investors and companies looking to produce low-cost goods.
The U.S. announced China-specific tariffs, targeting 818 imported Chinese products valued at $34 billion 2018. 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 to U.S. goods in February 2020.
Over time its anticipated Americans will feel the impact of these tariffs in the form of an increased cost of goods, while the Chinese economy is expected to experience a slowdown.
Summary -China’s worlds Biggest Manufacturer
Many have wondered if China will ever lose its spot as the world’s biggest manufacturer as other economies emerge. One thing that keeps China in that spot, and also keeps the “Made in China” label on most of the products in other countries, is its low labour costs, but it will take more than cheap labour coast for other emerging economies to measure up with China’s. Hence, in the interim, China remains the “world’s biggest manufacturer” with its huge business ecosystem, low laver cost, and low production costs.
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