Why are 'things' from China so cheap?

[Michaelangelica]

I just purchased and excellent pair of gardening 'clippers' (secateurs) for AUD $3 (c $2.20 US).

 

They were made of cast aluminum and weighed 270 grams.

 

I have purchased similar secateurs for $15-$25 in previous years.

 

Assuming the shop paid $1.50 for them, then take out freight, customs, importer margin etc., etc What is the factory in China getting? 50-75cents?

 

How can they even buy the aluminum for that price let alone transport, melt, cast it and package it?

(I tried to look up the international price of aluminium but couldn't find it)

 

Is China deliberately keeping the exchange rate of their currency low?

Is that why things are so unnaturally cheap?

[Boerseun]

Yep - that's the case, all right. China has pegged its currency at an artificially low rate against the US dollar, making it possible for them to manufacture and export stuff cheaper than anybody else. The US (and the rest of the world, for that matter) is at loggerheads with China about it, because this imbalance takes away manufacturing en masse from other countries. The Chinese market is for all practical reasons shut for anybody attempting to export to China, because of the same reason. For Chinese, importing stuff from overseas is ridiculously expensive - because foreign currency to them is artificially expensive. This, of course, protects their domestic market.

 

This is a dangerous imbalance, because to a large extent the seemingly never-ending growth of the Chinese economy is based on artificial currency manipulation, which, when it crashes (which seems inevitable) will skew the world economy to an extent that might approach that of the 1920's.

[Qfwfq]

Is China deliberately keeping the exchange rate of their currency low?

Is that why things are so unnaturally cheap?

Most of all they have cheap labour, including that of children. The low yuan helps, sure, except it doesn't make it cheaper for them to acquire raw materials from the rest of the world, the price of which they have greatly contributed to push up in recent times.

 

This is a dangerous imbalance, because to a large extent the seemingly never-ending growth of the Chinese economy is based on artificial currency manipulation, which, when it crashes (which seems inevitable) will skew the world economy to an extent that might approach that of the 1920's.

The Dow dipped breifly back below the 12000 mark yesterday. It plummeted in the past couple of weeks, with most world stock indices, because of the Chinese bear.

[sanctus]

Yes, qfwfq said the fundamental thing in my view, the reason is children labour (up to 15h a day) and generally cheap, underpaid labour. I don't give any links, but jàust type something like children labour china in some search engine and you'll see.

[Boerseun]

Whilst child labour is definitely an issue regarding China's cheap production capability, I'm sure that if the Chinese currency is realistically valued, that even child labour would then be expensive. Regardless of the moral issues involved with child labour, I see the undervalued currency as the biggest cause to this issue.

[Qfwfq]

I see the undervalued currency as the biggest cause to this issue.

A sudden currency devaluation will obviously make a difference to import and export, but in normal circumstances it will be temporary as the domestic economy would adjust to higher prices of non-domestic goods. This is quite well known to economists. China's boom has not been thriving on internal raw materials alone, I've already said it has pushed up the international prices in the past few years. Speculators have ridden on it as well as mining companies. Devaluation could hardly make most of the difference, especially a fixed one.

 

China is currently traversing a stage like the industrial revolution here in the good-ole west, with labourers being cheaply exploited just like in our 18 hundreds. Its participation in international politics has been much aimed at attaining favourable deals in raw materials too, it has been of hinderance to international diplomatic efforts concerning areas of crisis, such as the Sudan.

[Michaelangelica]

gardening 'clippers' (secateurs) for AUD $3 (c $2.20 US).

 

They were made of cast aluminum and weighed 270 grams.

 

Is China deliberately keeping the exchange rate of their currency low?

Is that why things are so unnaturally cheap?

 

Something else has to be going on.

The international price of aluminum was US$2,094 a metric tonne in 2006. My secateurs therefore contained c$0. 30 cents worth of aluminum before you start.

then you have to get it to China, build a factory, and then melting, molding, machining, assembling, packaging, transporting, wholesaling, retailing etc the secateurs.

 

(Interesting, the local Alcoa aluminum smelter here is given a huge discount on electricity by the local power company A discount household consumers, like me, no doubt pay for and that China benefits from.)

[Racoon]

The problem also is China's lack of environmental concern. No real protective regulations coupled with the points adressed in earlier posts.

 

China a very polluted country now.

 

Their motivation later will to be secure new resources with the gains they've made at the expense of the environment and working poor

[Thorshammer]

My understanding is that the "duties" for importing metal products from China is the lowest of any materials, with paper products being among the highest. One would have thought the opposite :shrug:

 

I've poked around on Ebay and asked a few sellers of "Bronze" sculpture where they manufacture. The answer was China because of the lack of regulations. Great, so who cares about the people? No one.

[CraigD]

(Interesting, the local Alcoa aluminum smelter here is given a huge discount on electricity by the local power company A discount household consumers, like me, no doubt pay for and that China benefits from.)

I’m don’t know about your local aluminum plant, but have read that many get discounts on their electricity because of their company’s participation in the building of the electric generator plants that supply them with power. Because modern aluminum smelting requires so much electrical energy (on average, about 57,000,000 J electrical input / 1 kg of aluminum output), aluminum companies like Alcoa often build plants in conjunction with the building of an electrical plant to power it. A high-profile current example of this is the new “Fjardaál” smelter and hydroelectric dam at Reydarfjordur in Eastern Iceland, scheduled to begin production this year (2007). Alcoa appears to have made a good business deal here, with the government of Iceland building the dam and generator in return for the 750+ long-term jobs the facilities will provide (along with more cheap electricity than the locals will know what to do with).

 

This appears to be a wise business practice. The aluminum plant nearest me, Alcoa’s Eastalco, closed and laid off about 650 workers in 2005, when a “deregulating” change in Maryland law took effect, resulting in an increase in electricity cost rendering the plant unable to operate at a profit. Last year, Eastalco began work on a plan to build a coal-fired electric generator on land leased from the US Navy, selling the excess electricity to the Navy, allowing the plant to resume operation as early as 2011 (Aluminum Association | Alcoa, Navy Eye Generator in Md. to Power Shuttered Smelter).

 

This hit me personally, as my croquet club formerly rented a nice recreation facility near the plant for our big annual tournament. When the plant closed, so did the rec facility, forcing us to scramble (successfully :shrug:) to find a new location in time for last year’s “big party”.

Something else has to be going on.

The international price of aluminum was US$2,094 a metric tonne in 2006. My secateurs therefore contained c$0. 30 cents worth of aluminum before you start.

Given China’s considerable water power resources and interest in hydroelectric power, I wonder if they are working on or already enjoying similar partnerships. The “internal” cost of aluminum in China could be considerably less than the international price.

[LaurieAG]

Is China deliberately keeping the exchange rate of their currency low?

Is that why things are so unnaturally cheap?

 

In the past 8 years or so China has undergone a modernisation of many older factories so that the newer ones require about 25% of the staff as before to produce much more product. The major outsourcing efforts from the USA and other nations around the world drove this trend to its current peak.

 

As a result of the efficiency gains in certain specific industry niches, allowing their currency to appreciate or depreciate in an uncontrolled manner would cause much undue hardship for many tens of millions of Chinese people.

 

They are only being responsible global economic citizens (to their own people i.e. what western democracies are theoretically supposed to do), as opposed to those who have sent their local work offshore to increase the profits to their shareholders and themselves.

[Michaelangelica]

In the past 8 years or so China has undergone a modernisation

allowing their currency to appreciate or depreciate in an uncontrolled manner would cause much undue hardship for many tens of millions of Chinese people.

 

as opposed to those who have sent their local work offshore to increase the profits to their shareholders and themselves.

good points LaurieAG

So why does everyone else let their currency rate be determined by the international market (ie "float")?

Do companies have a choice about outsourcing to China; given their only aim in life is to increase returns for shareholders?

 

A freind was in China and saw, lets say a 'bolt", selling for 10c. He knew the local Hardware store Barn/Chain ( nothing like the great, old fashioned, evertyhing-crammed-in-everywhere, Aldan's caves,. . sigh. . .) sold the bolt for $2. He saw the opportunity for profit; offered the bolt to the Hardware chain for 25c. They rejected his offer, saying they were buying it cheaper themselves!

Now that sounds like profiteering to me.

 

Re CraigD's comments re aluminium. I don't think that is the case here; but the aluminium factory is bang in the middle of the major coal field and power generating area for the state. (Newcastle/ Hunter valley)The aluminum ore is shipped from Weipa in NT thousands of miles away. The power stations used to be owned by the state now they are privitised (ie owned by Americans- Origin)

I am pretty sure China buys a lot of its aluminum from us. (So we are back to 30c worth of aluminium for my secateurs) When China sneezes (as happened a few weeks ago) Oz mining stocks catch a cold. Things are fast getting to the stage when mining will be the only industry left. Most manufacturing is now off shore. Mitsubishi and Ford struggle on with car factories and Govt. help but that won't last. I am told Mercedes cars are now built in China.

 

Perhaps the shop just mis-priced my $3 secateurs- I have been thinking I need to go back and buy 6 pairs.

I have seen them in the supermarket for $10.

 

PS

I am told croquet is a no-holds-barred, devious, vicious game anyhow.:confused:

(I always wanted to learn it):hihi:

[maikeru]

Is China deliberately keeping the exchange rate of their currency low?

Is that why things are so unnaturally cheap?

 

Yes, I believe they are. The US has complained numerous times about the undervalued yuan, despite our insatiable appetite for their cheap goods.

 

Like others here have mentioned, why things are cheap in China is a complex interplay of many things. Having such a large population (and remember that most of China's population is still rural, very poor, and many are uneducated or poorly educated and cannot therefore ask for good pay), they have an almost inexhaustible supply of cheap labor. They have deals with several countries to import materials in huge quantities, such as wood from Indonesia and Brazil (and are fueling deforestation in those countries). They also make commitments and investments in other countries such as Brazil and Iran to help develop infrastructure in return for services + resources. Companies sometimes have agreements with the national and local Communist party officials to help suppress workers' wages and strikes, which maintains production and schedules. Infrastructure, such as roads and factories, in China is often not built and paid for by the Chinese but by foreign investors and developers. Land is often seized illegally or through forced coercion from farmers and other citizens, and then given/sold to developers and investors.

 

There are more things I could list and many more that I don't know, but it's safe to say that things are really stacked in the favor of China.

 

I feel a bit sorry for China. The people are lovely, but the government and land not so much now. Too much corruption, too much pollution. And this is a real shame considering China's affinity for the land and scenery in older times. The love of the land that would inspire poetry and paintings.

[jungjedi]

i dont mean to make waves but i just got a nokia 5300 from china.paid 220.coud have got it cheaper from same sorce.but still left wondering how this thechnology could come to me so chea.i mean its a 2 gig mp3-mp4aaq with bluetoooth,and very killer lcd.i could set it to silent and get off to the ringtones in my pocket if you know whot i mean.whats next,a phaser ?

[LaurieAG]

So why does everyone else let their currency rate be determined by the international market (ie "float")?

Do companies have a choice about outsourcing to China; given their only aim in life is to increase returns for shareholders?

....

Perhaps the shop just mis-priced my $3 secateurs- I have been thinking I need to go back and buy 6 pairs.

I have seen them in the supermarket for $10.

 

The difference is between an unregulated 'free' market and a regulated 'fair' market. Coincidentally, I often wonder where deregulation really ends considering that recently, when business regulations have been deregulated, personal regulations are much more heavily regulated in return. It's a bit like a fairy tale ending really.

 

'The plea of BeiBionn'

 

You can have your magic beans Jack, your children are hungry and we need the cow back.

The lack of just terms and equitable or fair pacts, expose all crooked beanstalks to concerted attacks.

Unless obsessive cycles are stopped in their tracks, our towns will again be as flat as tacks.

You have been too trusting Jack, your childrens futures remain black, while current problems compound through lack.

Struggle earnestly against the pack, repudiate rights to depreciatingly retract, as giants fortress lie ripe for sack.

For only fair shares of the golden goose Jack, will save beanstalks and giants from the axe.

 

Your secateurs could have been a 'loss leader' intended to reduce profits or even make a loss. The difference is made up by increasing the margin on several other items to compensate for the loss.

 

Cheers.

[Michaelangelica]

The difference is between an unregulated 'free' market and a regulated 'fair' market. , your childrens futures remain black, while current problems compound through lack.

Struggle earnestly against the pack, repudiate rights to depreciatingly retract, as giants fortress lie ripe for sack.

For only fair shares of the golden goose Jack, will save beanstalks and giants from the axe.

 

Your secateurs could have been a 'loss leader' intended to reduce profits or even make a loss. The difference is made up by increasing the margin on several other items to compensate for the loss.

 

Cheers.

Good points The secateurs are their regular price

I found this in the latest amnesty mag

Found the full press release on their site.

It tells an interesting story.

 

Perhaps, judging by the feeling on this thread, we would all pay an extra 10% say- for Chinese stuff- if they looked after their people, the planet and addressed GW issues?

China: The human cost of the economic 'miracle'

 

 

Press release, 03/01/2007

The millions of migrant labourers who are fuelling China's economic growth are treated as an urban underclass, according to a new report by Amnesty International. Despite recent reforms, they are shut out of the health care system and state education, live in appalling, overcrowded conditions and are routinely exposed to some of the most exploitative working conditions.

 

"China's so-called economic 'miracle' comes at a terrible human cost -- rural migrants living in the cities experience some of the worst abuse in the work place," said Catherine Baber, Deputy Asia Pacific Director at Amnesty International. "They are forced to work long stretches of overtime, often denied time off even when sick, and labour under hazardous conditions for paltry wages."

 

"As well as being exploited by employers, migrant families face discriminatory government regulations in almost every area of daily life. They are denied housing benefits and health insurance available to permanent urban residents and their children are often effectively shut out of the state education system."

 

There are estimated to be between 150-200 million rural workers who have moved to China's cities in search of work and the number is set to grow in the coming decade. In some cities they make up the majority of the population.

 

Internal migrants are required to register as a temporary residents with local authorities under the hukou (household registration) system. Those who manage to complete the often laborious process still face discrimination in housing, education, health care and employment on the basis of their temporary status. The many who are unable to complete the process are left with no legal status, making them vulnerable to exploitation by police, landlords, employers and local residents.

 

"The central government has taken some steps to improve the plight of migrant workers, but the biggest issue remains entrenched -- the hukou system continues to discriminate against people on the basis of their social origin," said Catherine Baber. "The government must reform the hukou system and also push local authorities to implement existing laws that are meant to ensure health care, fairer conditions of employment and free primary education."

 

Managers use a variety of tactics to prevent workers resigning. Internal migrants are typically owed back pay, meaning those who quit their job lose at least 2-3 months wages. Employers often purposefully withhold wages before the lunar new year to ensure workers come back to their jobs after the festive period -- meaning millions of migrants are unable to buy train tickets home for the holidays. Managers often illegally force workers to pay a deposit to prevent them switching jobs. Because of their insecure status under the hukou system, internal migrants are not likely to complain.

 

Such tactics allow managers to deal with the growing labour shortage without having to raise wages. This helps explain why wages have not risen significantly in response to labour shortages, as one would expect under normal market conditions.

 

One migrant, 21-year old Ms Zhang, worked in a clothing factory on the outskirts of Beijing. The workers had not been paid for 3 months and they decided to cut their losses and leave. But they were locked into the factory and needed permission slips to leave. Finally one of them stole the key to the gate and they left en masse so the guard couldn't hold them back. Ms Zhang recounted: "At the time, we were really pleased with ourselves... In fact, there were those in our group who had lost four months of wages."

 

Millions of children of internal migrants are also affected and struggle to get a decent education. In many areas they are effectively shut out of state schools by their parents' lack of local hukou registration, by charges levied exclusively on migrants or by high school fees.

 

"China has committed to providing free primary education, but despite the efforts of the central government, state schools still charge fees that make primary education unaffordable, particularly to internal migrants," said Catherine Baber. "These millions of children are China's future: the government must allow them an education."

 

Further information :

Feature: China's growing underclass

China: Internal Migrants: Discrimination and abuse. The human cost of an economic 'miracle'

China: Resource for journalists -- memorandum on 'Re-education through Labour'

01/03/2007

China: The human cost of the economic 'miracle' - news.amnesty - Amnesty International

[Michaelangelica]

Well if they continue to make crappy products like my "Phillips" brand, Made in China, low energy, light that lasted 4 months

China will do more environmental damage than we thought possible.