The prominence of Chinese products in global markets prompts a critical question: what makes so many products to be manufactured in China? The labels you have noted with the “Made in China” emblem are simply a part of a greater story of the country’s economy. Being one of the world's largest manufacturing hubs, China has become one of the main suppliers of various consumer products.

Many factors have been attributed to China’s manufacturing power. Although people often link this to lower labor costs, the situation is not as simple as that. China's efficient business environment, together with positive regulation and competitive currency management, has made the country an essential player in the production process worldwide. All these factors nurture manufacturing industries, thus explaining the reason why many products have the Chinese label.

Reduced Earnings

China's population is huge, and the working population is approximately 1.41 billion people. The principle of supply and demand is evident here: when there are more low-wage workers in the labor market than job vacancies, wages are constrained. Until the last few decades, the majority of the populace was rural and relatively poor, which has caused the rapid movement of people to urban centers. Most of these immigrants are willing to work long hours for little or no wages.

China’s labor laws are less protective than other developed countries. Child labor laws remain more lax, and the minimum wage is less than that of the developed countries. This trend is slowly shifting, and several provinces have started adjusting their minimum wage rates in response to the increasing cost of living.

Minimum wage regulations encompass two types: hourly and monthly. The latter does not include other forms of remuneration, such as for working extra hours, working at night, or working on weekends. Provincial authorities set and review these wage rates from time to time. Presently, Shanghai has the highest minimum wage on a monthly basis at 2,690 RMB ($370), while Beijing has the highest hourly wage at $3.70 (RMB 26.40).

The large population in China is enough to provide cheap labor, which facilitates production; hence, companies can meet the peak demands and changes in the market.

Business Environment

The industrial production process thrives within a complex system of actors such as suppliers, manufacturers, distributors, regulators, and consumers, who all participate in the production process as rivals or partners. The Chinese business environment has improved tremendously since the onset of the 1990s.

Geographically, Shenzhen, which is located near Hong Kong, has become the leading city of the electronics industry. This city has grown a complete system that supports the structure of the manufacturing supply chain, including component manufacturers, a cheap workforce, technical professionals, assembly contractors, and consumers.

Apple Inc. and other firms are able to benefit from the cost efficiencies within China’s supply chain networks to keep costs low and profits high. Such companies as Foxconn Technology Group, based in Taiwan, have the advantage of being located close to many components suppliers and manufactures, which makes it uneconomical for many companies to ship components to the United States for assembly. This makes providing products and services easier, increasing operational efficiency, and reducing costs.

Reduced Regulatory Standards

In many developed countries, manufacturers are subjected to numerous legal requirements relating to the safety of their products, employees' working conditions, and environmental policies. On the other hand, China has a relatively weak regulatory framework because it is a newcomer to the industrial sector.

Historically, Chinese factories have been accused of employing child labor and having long working hours without insurance. Although the current reforms are based on the enhancement of worker rights and better remuneration, the implementation is still a challenge across different industries. Also, different environmental laws are not well implemented, which means that factories can cut back on their waste management costs.

The effects of these lenient measures are significant. For instance, the data shows many of the world’s most polluted cities are in China. Air quality standards also briefly improved during early COVID-19 lockdowns, showing that changes are possible when rules are set or changed.

Taxes and Duties

Tariffs Between China and the U.S.

In July 2018, the US announced the tariffs on 818 products imported from China, with a total value of approximately $34 billion. This marked the beginning of a series of tariff actions taken by both nations. Up to the beginning of 2020, the United States had levied $550 billion worth of tariffs on Chinese goods, and China had levied $185 billion worth of tariffs on American goods.

After the change of the U.S. government, negotiations on the possibility of lowering these tariffs were brought up. China’s Foreign Minister Wang Yi called for the elimination of several tariffs as President Biden assumed office. Since Biden assumed the presidency, there has been a constant discourse on the possibility of further tariff reductions.

Higher inflation in the USA in 2022 led Biden and Treasury Secretary Janet Yellen to propose reducing tariffs on Chinese products to help fight domestic inflation. Lowering these tariffs may lower the consumer price and, therefore, positively impact different sectors in the economy. The ongoing negotiations reflect a larger strategic consideration regarding trade relations and economic stability between the two countries.

Currency

China's management of the yuan has been accused of manipulating the currency to ensure it is undervalued and boost export competitiveness. The Chinese government is able to control the exchange rate since it buys U.S. dollars and sells yuan. This leads to a depreciation of the yuan's value, which in turn encourages foreign buyers to buy more Chinese products and increases China's stature in international trade. 

By the end of 2005, it was postulated that the yuan was about 30% cheaper than the dollar. An appreciation of yuan happened in 2017, and the yuan rose by 8 percent against dollar at a time when Trump threatened to label China as a currency manipulator. But this drift was short-lived because from June 2018, the Yuan started to depreciate due to tariffs imposed on Chinese imports by the United States.

On August 8, 2019, the yuan touched its lowest point of trading at 7.0205 per dollar, marking its low point since April 2008. The yuan continued to lose its value during the COVID-19 pandemic and it kept on losing value after that. As of 2021, one US dollar was equal to 6.4529 Chinese Yuan with a notable increase to 7.17 at the beginning of 2024.This constant change is an indication of the fact that currency values are always in a state of change due to the pressure that exists within the economy.

Factors Behind the Strength of the Chinese Economy

There are several key reasons why China’s economy is doing rather well. Domestic infrastructure and real estate are the main drivers of growth through large investments. Lower wage rates and beneficial tax policies cut down the cost of manufacturing, while efficient supply chain networks entice international firms in search of practical production strategies.

Amount of U.S. Debt Owned by China

As of March 2024, Chinese entities held over $767 billion in U.S. Treasury debt. This figure encompasses all accounts situated in mainland China, not just governmental holdings.

Is China the Largest Economy in the World?

China is the world’s second-largest economy. According to a recent survey, the United States ranks first in the world with a Gross Domestic Product (GDP) of $28.8 trillion in 2024. By comparison, China’s GDP is about $18.8 trillion as of the latest figures.

Key Takeaways

China has retained its position as one of the world’s leading manufacturing powerhouses for several reasons besides cheaper workforce. High production costs, a large population and abundance of talents are some of the factors that have made the ‘Made in China’ label to rule. New market economies struggle to develop the necessary infrastructure and ecosystem to match the comprehensive manufacturing capabilities that are available in. The current competitive landscape shows that China will remain dominant in the manufacturing sector for the next few years.