Why Is Manufacturing In China More Expensive Than Foreign?

In my opinion, the goods made in China are cheaper than those in the domestic market, mainly due to the following reasons: first, related pactions lead to a special "price difference" in Chinese goods.

As we all know, China's foreign trade export enterprises are a very special group. 30% of the export enterprises belong to the processing enterprises, and 40% of the export enterprises are concentrated in coastal areas.

These enterprises are carrying out the trade policy of "two heads". Most of the raw materials come from abroad, and most of their products are exported to overseas countries.

This special pattern of foreign trade determines that the products produced by many export enterprises can not enter the domestic market at all.

Take notebook computers as an example, although the latest notebook computers are produced by enterprises in Dongguan, China, the core components of these notebooks come from overseas, and all products are exported overseas. It is certainly much more expensive to purchase notebook computers in the Chinese market than in the US.

Of course, the export enterprises do not want to earn high profits in the offshore market, but this will lead to a decline in the competitiveness of the products.

When the vast majority of raw materials come from overseas affiliated enterprises, the related companies outside the foreign trade enterprises have already made huge profits from the export of raw material prices.

In order to avoid China's tariffs, these foreign export enterprises, when signing the export contracts, try hard to lower the price, so that they can ensure that the overseas importing enterprises have enough profit margins, at the same time, they can also reduce the cost of foreign trade export enterprises and reduce the taxes paid in China.

However, when the products produced by these enterprises are sold in China, the affiliates of foreign export enterprises can not get enough profit from related pactions, so they have to raise their prices.

This is the fundamental reason why the price of export goods is cheaper than that in China.

Secondly, the Chinese market is a fragmented market. The entry of enterprise products into the domestic market requires huge paction costs.

For example, an enterprise's product entering the domestic supermarket not only needs to pay the entry fee, but also has to pay all kinds of guarantee money.

At present, most of the supermarkets in large cities in China belong to Sino foreign joint ventures or foreign invested enterprises. They restrict the sale of some enterprises' products locally by setting up trade thresholds.

If enterprises want to enter their sales channels, they must pay 15% to 20% of the sales revenue, which is a burden that can not be borne by those who are just starting up.

Moreover, in order to support local enterprises, some local governments have artificially set up some trade thresholds to prohibit the sale of products from foreign enterprises into local markets.

Many enterprises, in order to expand their sales channels, have to make an article on sales and paction costs, pay discounts and commissions directly or indirectly, and ensure that enterprises can form sales outlets in China.

In recent years, China has strengthened supervision over the retail market, and prohibit some large retailers from charging entry fees.

As a result, some comprehensive large retail enterprises take the way of rental counters or production companies with their own salesmen to pfer sales burden to production enterprises.

Under such a trading pattern, some production enterprises have to abandon the domestic market and seek foreign trade export channels instead.

The sale of enterprise products abroad, although increased the cost of pportation, but it can significantly reduce paction costs, so the prices of these products sold abroad are cheaper than in the domestic market.

Third, the financial environment is also an important reason for China to make foreign prices cheaper than domestic ones.

Trade can be divided into two parts: cargo delivery and fund settlement.

Due to the lack of a good credit environment in China and the failure to settle accounts or repudiate on time, there is a huge credit risk in China.

Banks in order to reduce their risk, often in the settlement of funds to fight their own small calculation, which led to many of the goods that should have been paid, because of the reasons for financial enterprises and be withheld.

Although there are huge credit risks in international trade, financial risks are lower than those in domestic trade, as countries generally abide by trade agreements and business practices.

From the perspective of industrial chain, because most foreign trade enterprises play the role of processors, there is almost no credit risk in export trade.

In other words, export orders come from abroad, raw materials processed from abroad, and settlement funds are mainly used to purchase raw materials, so the paction cost in the financial sector is relatively small.

Many export trade is actually a paction between some overseas family group enterprises, so there is no settlement risk at all.

Because the financial risk of export trade is relatively small, and the financial cost of domestic trade is relatively large, so objectively, the price of foreign trade export products sold abroad is cheaper than in China.

Fourth, because of the monopolistic operation of state-owned enterprises in China, the domestic prices of some products or services are much higher than those of overseas prices.

Fifth, we must not lose sight of the fact that China's unique tax system is also a cause.

Our country not only promulgated the "three funded enterprises" law, but also formulated various tax incentives for the "three funded enterprises".

Many "three funded enterprises" engage in foreign trade export operations. On the one hand, they enjoy preferential treatment in China. On the other hand, they evade state taxation through related party pactions.

Chinese mainland enterprises can neither enjoy the preferential treatment of "three capital enterprises", nor can they evade state taxation through related party pactions. Therefore, the prices of products produced by Chinese mainland enterprises in China are naturally much higher than those sold by "three funded enterprises" outside China.

This is unfair competition, which is a special trade discrimination.

Analysis of this phenomenon is somewhat helpless.

Most of China's reform and opening policies are phased products, which hide behind very complicated political, economic and diplomatic factors.

Now our country is in the period of readjustment of the system reform. The state must revise its foreign trade export policy, take a comprehensive look at the market competition environment in China, and establish a good legal platform for the fair competition of enterprises.

Otherwise, Chinese products will face more and more anti-dumping and countervailing accusations in the foreign market. The macroeconomic regulation and control policies of the Chinese government to stimulate domestic market demand are also hard to put into practice.