Why are China’s exports so cheap?
China is the world’s largest exporter of goods, accounting for 14.7% of global exports in 2020. China’s exports are known for being cheap and competitive, enabling the country to dominate many markets and industries. But what are the factors that contribute to China’s low-cost exports? This article will explore some of the main reasons behind China’s export success.
China’s export industry overview
China’s export industry has grown rapidly since the country’s economic reforms and opening up in the late 1970s. China has transformed from a largely agrarian and closed economy to a global manufacturing powerhouse and trading partner. China’s export industry is diverse and covers a wide range of products, from clothing and toys to electronics and machinery. Some of the major export sectors include electrical machinery and equipment, machinery and mechanical appliances, furniture and bedding, plastics and articles thereof, and vehicles and parts.
According to the World Bank, China’s exports of goods and services amounted to $2.6 trillion in 2020, representing 17.7% of the country’s gross domestic product (GDP). China’s main export destinations include the United States, the European Union, Japan, Hong Kong, and South Korea. China’s exports have been a key driver of its economic growth, employment, and foreign exchange earnings.
Factors contributing to China’s competitive edge
There are several factors that enable China to produce and sell its exports at low prices. Some of the most important ones are:
Government support and policies
The Chinese government has played an active role in supporting and promoting its export industry. The government has implemented various policies and measures to facilitate trade, such as providing subsidies, tax incentives, preferential loans, and export credits to exporters. The government has also invested heavily in infrastructure, such as roads, railways, ports, and airports, to improve the efficiency and connectivity of the supply chains. Moreover, the government has pursued trade agreements and cooperation with other countries and regions, such as the Regional Comprehensive Economic Partnership (RCEP), the Belt and Road Initiative (BRI), and the China-Africa Cooperation Forum (FOCAC), to expand its market access and trade opportunities.
Manufacturing capabilities and infrastructure
China has developed a strong and comprehensive manufacturing base that can produce a wide variety of goods at large scales and low costs. China has a vast pool of labor, land, and capital resources that enable it to achieve economies of scale and scope in production. China also has a well-established and integrated industrial system that covers the entire value chain, from raw materials and components to finished products and services. China’s manufacturing capabilities are supported by a robust and modern infrastructure, such as power, water, telecommunications, and logistics, that ensure the smooth and reliable operation of the factories and the delivery of the goods.
Low labor costs and skilled workforce
One of the main advantages of China’s export industry is its low labor costs. China has a large and abundant workforce of about 775 million people, of which about 270 million are migrant workers from rural areas5. China’s labor costs are significantly lower than those of many other countries, especially developed ones. According to the International Labour Organization, the average hourly labor cost in China was $6.5 in 2019, compared to $36.6 in the United States, $28.4 in Germany, and $20.1 in Japan. China’s low labor costs enable it to offer competitive prices for its exports.
However, low labor costs are not the only factor that makes China’s workforce attractive. China also has a skilled and educated workforce that can produce high-quality and sophisticated goods. China has invested heavily in education and training, especially in science, technology, engineering, and mathematics (STEM) fields, to enhance its human capital and innovation capacity. China has the largest number of STEM graduates in the world, with about 4.7 million in 2016, compared to 568,000 in the United States, 564,000 in India, and 237,000 in Japan. China’s skilled and educated workforce enables it to produce and export more advanced and value-added products.
Market access and international trade agreements
Another factor that contributes to China’s export success is its market access and international trade agreements. China has been an active participant in the global trading system and has pursued trade liberalization and integration with other countries and regions. China joined the World Trade Organization (WTO) in 2001, which granted it the status of a market economy and opened up its market to foreign trade and investment. China has also signed bilateral and multilateral trade agreements with many countries and regions, such as the Association of Southeast Asian Nations (ASEAN), Australia, Chile, New Zealand, Pakistan, Peru, Singapore, and Switzerland. These trade agreements have reduced or eliminated tariffs and non-tariff barriers, enhanced trade facilitation and cooperation, and increased market access and opportunities for China’s exports.
Innovation and technological advancements
The last factor that enhances China’s export competitiveness is its innovation and technological advancements. China has been investing heavily in research and development (R&D) and innovation, aiming to become a global leader in science and technology. China’s R&D spending reached $378 billion in 2018, accounting for 2.19% of its GDP and ranking second in the world after the United States. China has also increased its patent applications and publications, indicating its growing innovation output and quality. China filed 1.54 million patent applications in 2018, more than any other country in the world, and published 528,263 scientific papers in 2019, ranking second after the United States.
China’s innovation and technological advancements have enabled it to upgrade its export structure and increase its value-added. China has been shifting from exporting low-end and labor-intensive products, such as textiles and toys, to exporting high-end and technology-intensive products, such as computers and telecommunications equipment. China has also been developing and exporting its own brands and standards, such as Huawei, Alibaba, and TikTok, that compete with global rivals. China’s innovation and technological advancements have improved its export quality and competitiveness, as well as its global influence and reputation.
Conclusion
China’s exports are cheap because of a combination of factors, such as government support and policies, manufacturing capabilities and infrastructure, low labor costs and skilled workforce, market access and international trade agreements, and innovation and technological advancements. These factors have enabled China to produce and sell its exports at low prices and high quality, and to dominate many markets and industries. However, China also faces some challenges and risks, such as rising labor costs and environmental pressures, trade disputes and tensions, and increasing competition from other countries. China will need to continue to adapt and innovate to maintain and enhance its export competitiveness in the future.
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