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]

Originally Posted by Michaelangelica

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.

Originally Posted by Boerseun

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]

Originally Posted by Boerseun

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]

Originally Posted by 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

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]

Originally Posted by Michaelangelica

(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 ) to find a new location in time for last year’s “big party”.

Originally Posted by Michaelangelica

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.