Why are 'things' from China so cheap?

[InfiniteNow]

A good story on NPR Morning Edition today. An author and her family went an entire year without purchasing anything made in China, or anything which contained ingredients from China.

NPR : Life Without Goods Made in China a Challenge

A Year Without "Made in China": One Family's True Life Adventure in the Global Economy chronicles how Sara Bongiorni and her family tried to live without buying anything produced in China.

Listen here:
NPR Audio Player





The authors book:

Amazon.com: A Year Without "Made in China": One...
Amazon.com: A Year Without "Made in China": One...

[Michaelangelica]

Keri Phillips: China's huge trade surplus, and the high levels of foreign investment, should, in theory, have pushed up the value of its currency, but because this would make China's exports more expensive, the Chinese government has tied the yuan to the US dollar, keeping it artificially low.
Nicholas Lardy: Just in the last three or four years, the Chinese currency has become very, very under-valued, and this has provided a significant boost for China's exports.

Now a lot of people make statements that China's been doing this for decades, it's the old East Asian pattern, but that's not really true.
China's currency for all of the 1980s and for much of the 1990s, was actually over-valued, which meant they were penalising exporters and subsidising importers.

Then they went to more of an equilibrium kind of exchange rate in the mid-1990s and that served them fairly well for a number of years.
But in the last three to four years, their currency, because it's been tied to the dollar, has become significantly under-valued.

Remember, the dollar has been declining since its peak of February 2002, and since China was tied to the US dollar it has gone down with the value of the dollar, and more recently, combine that with the very high growth of productivity, and that has meant that Chinese goods have become more and more competitive on global markets.

And as of last year, this is reflected in the fact that China has now the biggest global current account surplus, the current account is the most comprehensive measure of a country's trade and other non-financial transactions with the rest of the world; they had a current account surplus that was $250-billion last year; this year it will be more than $400-billion, and as the size, relative to the size of its economy, China's surplus now is about three times the all-time high the Japanese had in the mid-1980s before their currency began to appreciate.

So their currency has gone badly off the track, since really about 2002, and 2003, and so they now have a very, very large trade surplus and a global current account surplus.

And this sounds a little bit abstract, but the important thing is that eventually the currency will have to come back closer to its true value, and when that happens, a lot of the investments that were made when the currency was at a disequilibrium value, will not be economically viable.
In other words, today the currency vis-à-vis the dollar is about 7.5, but if it went to 5, a lot of exports that seem to be profitable today would not be profitable because the dollar that you earn from selling on the domestic market would only translate into 5 Chinese domestic currency units, whereas today it translates into 7.5.
And since you need to pay for your labour and your inputs and your electric bill and so forth in domestic currency, if you're only earning 5 instead of 7-1/2, that's a very significant difference.

Keri Phillips: Why has China tied its currency to the US dollar?

Nicholas Lardy: I think it's been probably the most significant policy error that has been made in the last 30 years.
What they really have failed to recognise is that when they're pegged to the dollar and they have very, very rapid productivity growth, as particularly has been true over the last decade, their goods will become more and more competitive, and they'll have a bigger and bigger global surplus.
And it is I think simply explained, as I said, the biggest policy error that they've made in the last 30 years.

Keri Phillips: What are the long-term implications of this relationship between these two economic and political giants?

Nicholas Lardy: I think the biggest long-term risk is that these global imbalances will not be sustainable.

RN Rear Vision - 18 November 2007 - Economic embrace: China and the US

Is the Chinese currency tied to the US dollar- or to a basket of currencies including the US $?

[Jet2]

It sounds like every product made in China is harm to the environment...
It looks like most cheap labour in China are children especially those work 15h a day...
It seems like China Gov is the worst guy in World economy...

China open policy is still in progress. But things are improving here.
It's really not what you think that bad.
And you just cannot expect things totally change overnight.

See it for yourself if happen you have chance to come visit China.
Don't be misleaded by media especially those prejudiced ones.

Reasons why China product is so cheap has many reason.
Cheap labour is definitely one of them but it just doesn't mean they are mostly children labour. Think about how big a population we have here and how many percentage of them are uneducated former farmers. And these days 'cheap labour' is no longer an advantage for China for many other Asain countries can supply cheaper ones. Like Vietnam, Laos and Cambodia to name just a few.

As a consumer I think no one would mind if China product (providing they are in good quality) is being cheap. And I can tell you not to worry, China products are getting uncheap everyday. Just remember don't blame it one day when they became 'expensive' for we may say you asked for it.

And yet more and more oversea famous brand high end products are [Made in China] today. But then of course you can think they are not [from China]...

[Michaelangelica]

I thought you were from Afghanistan, not China, jet2?

[Jet2]

I wish I were MichaelA.
I am actually from Hong Kong and I am living in Shanghai currently.

So dear all, if you do have interest, welcome to China.

[DougF]

I found this in the news today, hope you don't mind me sticking it in this thread.

China's global trade surplus up 47%

The nation's biggest gap is again with the U.S. By Beijing's count, it amounted to $163 billion, up 13% from 2006.
By Don Lee, Los Angeles Times Staff Writer
3:49 AM PST, January 11, 2008
SHANGHAI — Despite a series of product recalls that tarnished the "Made in China" label, China's global trade surplus jumped 47% in 2007 from the previous year to a record $262 billion, the government reported today. But exports grew at a slower pace last month, an indication of weakening demand tied to the teetering U.S. economy.

In December, China's trade surplus fell to $22.7 billion from $26.2 billion in November. For the last three months, the value of China's imports has grown faster than the value of exports. Though that was partly the result of higher prices for imports of oil and other commodities, if the trend continues it could curb China's overall surplus and reduce tension with the U.S. and other trading partners.

For all of 2007, however, China's total exports rose by 25.7% to $1.218 trillion. Imports were up by 20.8% to $955.8 billion, according to the General Administration of Customs. The resulting surplus was $262 billion, compared with $177.5 billion in 2006 and $102 billion in 2005.

In 2007, China's biggest trade gap was once again with the U.S. By China's count, that surplus amounted to $163 billion, up 13% from 2006. That was a slower rate than prior recent years, as China's imports from the U.S. this year grew faster than its exports to America.

It was the reverse for the European Union. China's trade surplus with the EU widened by 46% in 2007 to $134 billion. That has prompted stronger calls from EU leaders for Beijing to let China's currency rise significantly in value, which would tend to make Chinese goods more expensive in overseas markets.

China's global trade surplus up 47% - Los Angeles Times

[Michaelangelica]

If the Chinese let their currency rise they loose money from their O/S $ massive reserves. (+make Chinese goods dearer).

Although with the US$ loosing value, that seems to be happening- despite what the Chinese want.

We live in inserting times.

PS

I found this in the news today, hope you don't mind me sticking it in this thread.

It is not up to me to mind This is a e-community just because I started the thread doesn't mean I own it. I am just glad a few others find it interesting too otherwise I would have more egg on my face.
The article was very interesting and appropriate. I thought.

[Mike C]

Originally Posted by 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?

Hey, this is a goivernment monopoly. If it was a free enterprise system, capitalism would have a 'field day' enriching themselves with the inflated profits they would help themselves to.

Mike C

[Jet2]

Why are 'things' from China so cheap?

Because it's from China.

Please excuse my laziness and naughtiness.
Hey it's Saturday man!

[Michaelangelica]

The tiger is not yet roaring




Tim Colebatch
January 22, 2008
Page 1 of 3 | Single page
Illustration: Dyson

A FEW days before Christmas, the world suddenly shrank. The distances from one side of the globe to another did not change. Rather, the value of the goods and services we 6.25 billion people produce was abruptly reduced.
At one stroke, the real value of the world's output was slashed by roughly $A8000 billion.
That's like suddenly losing China. It's something we should notice.

The agent of death was not global famine, but a long-awaited report to the World Bank by a team headed by former Australian Statistician Dennis Trewin.
Its mission was to carry out a rigorous comparison of the prices of goods and services throughout the world. Its findings have caused a shock.

It found that prices of goods and services in China were far higher relative to the West than previously assumed. In India, exhaustive price measures carried out for the team by local statisticians found there, too, prices were much higher than expected — as they were in most of the developing world.
. . . .
The biggest change was in China. The value of China's output alone was 40% less than previously assumed. We had thought China was on track to overtake the United States by 2010 and become the world's biggest economy. No: in 2005, it was not much bigger than Japan.

The tiger is not yet roaring - Tim Colebatch - Opinion - theage.com.au