China produces over 28% of the world’s manufacturing. Because of the China manufacturing boom, it’s not surprising that China’s gotten the nickname “the world’s factory.”
But why is there an increase in China manufacturing? How can it benefit your business? And how has the COVID-19 pandemic affected global relations?
Read this guide to find out everything you want to know about the China manufacturing market and why it’s actually good for your business.
What’s Driving the China Manufacturing Boom?
There are several factors that contribute to the boom in China manufacturing.
For most people, the lower cost of labor is probably the first factor they’d consider. There are lower wages in China. This makes manufacturing much cheaper.
China is the most populous country in the world. This means there are more workers than jobs. That keeps the cost of labor relatively low.
However, certain provinces have begun enacting more laws to protect workers. This includes installing minimum wages throughout the country.
Manufacturing is still cheaper when outsourced to Chinese factories. But, the cost of production isn’t the only consideration you should take into account.
The Chinese-U.S. Business Ecosystem
Manufacturing isn’t the only part of industrial production one must consider. In fact, there is a large network to consider that includes:
- Government agencies
American companies such as Apple utilize China’s efficient supply chain. This efficiency helps them to keep costs down and margins high.
Most U.S. companies operating in China find it unrealistic economically to complete productions on U.S. soil.
Additionally, business relations remain strong between the U.S. and China. Though political tensions may be high, many businesses feel confident in their Chinese manufacturing relationships.
In fact, this is the most confidence many businesses have felt since the beginning of the COVID-19 pandemic.
Lower Compliance Standards
Product assembly in China does not have to meet certain guidelines American businesses must follow. For example, China is much more relaxed about the following standards:
- Involuntary and child labor
- Health and Safety Guidelines
- Wage laws
- Environmental protection laws
Though labor laws are changing in China, they are still far less strict than in the United States. This helps to save on labor costs.
Chinese factories also save on waste management. This is because environmental protection laws are not strictly enforced.
Savings on Taxes and Duties
In 1985, China enacted the export tax rebate policy. This policy abolished double taxation on exported goods. This was responsible for making Chinese manufacturing much more attractive to potential investors.
Exported goods in China are subject to 0% value-added tax (VAT). That means these products are exempt from VATs.
Chinese products are also exempt from import taxes. This keeps production costs low, which attracts more investors.
China is a massive pillar in the Asian market. The Asian market in general is growing at an extremely rapid rate.
Doing business in China helps to expand your reach to these valuable Asian markets.
These expansions can multiply your company’s business opportunities exponentially. You also streamline your ability to introduce products into markets across Asia, especially Chinese markets.
How Did COVID-19 Affect Chinese Manufacturing?
It’s no surprise that the COVID-19 pandemic affected the boom of Chinese manufacturing. China was, after all, the first country to experience the effects of the pandemic.
It is common practice for Chinese businesses to take a week off for Lunar New Year celebrations. In 2020, this break was extended. This was China’s attempt to stop the spread of COVID.
Unfortunately, like many American businesses, Chinese businesses experienced delays in production. Many workers became sick, slowing down manufacturing.
Additionally, issues in the global supply chain created fear around reliance on outsourced manufacturing. This included Chinese manufacturing.
Chinese Recovery in a Post-COVID Economy
However, Chinese factories continued on. Many of them capitalized on mask production to keep them operating throughout COVID.
Now, it appears that China’s manufacturing is on the come-up. However, since the roughest days of the pandemic, it would appear China has made a full recovery.
How Did the US-China Trade War Affect Chinese Manufacturing?
While in office, US President Donald Trump attempted to decouple the Chinese and US economies. This created a trade war that affected, and still affects, the manufacturing industry.
However, an annual member survey by the American Chamber of Commerce in Shanghai revealed that 92.1% of its members had no plans to leave China.
Even with Trump’s push, leaving Chinese manufacturing was not an attractive prospect to many companies. Most of these companies have revenues above $500 million USD.
How Is China Upgrading Its Manufacturing Industry?
The Chinese government’s goal is to have 30% of its gross domestic product (GDP) come from new industries. So what are they doing to meet this goal?
By 2025, China plans to have strong innovation in its manufacturing industry. They expect to use these innovations to drive high-quality growth.
Some manufacturing innovations China is currently working on include:
- Sharing production facilities
- Sharing tools and equipment amongst facilities
- Making intellectual resources such as designs and development practices public use
Their goal is to use this plan to boost resource allocation. This will help to improve efficiency and drive higher ROIs for business manufacturing in China.
Take Advantage of the Chinese Manufacturing Boom
So, you can see how Chinese manufacturing is a valuable market for American businesses.
The factors driving the China manufacturing boom can help to lower costs and boost your ROIs so that your business sees significant returns. Plus, you can streamline your business for introduction into the up-and-coming Asian markets.
Contact our team if you’re ready to begin manufacturing in China. With Shield Works, you can rest easy knowing you’re making the right choice for your business’s manufacturing needs.