The “China Price”

Chen Yanning's oil painting Chairman Mao Visit Guangdong CountryHow has China become the world’s “factory floor”?

What causes China’s prices?

The ‘China Price Project’ tried to figure out what causes China’s low, low prices, the prices that have allowed it to capture “70% of the world’s market share for DVDs and toys, more than half for bikes, cameras, shoes, and telephones; and more than a third for air conditioners, color TVs, computer monitors, luggage, and microwave ovens.”

Their conclusions are that lower labor costs account for 39%, China’s clever practice of locating related factories near each other (which lowers shipping costs and makes it easier to coordinate) accounts for 16%, and the efficiencies permitted by the flood of investment into China account for 3%. As for more standard government policy issues, export subsidies account for 17%, undervalued currency for 11%, counterfeiting and piracy for 9%, lax environmental and safety standards for 5%.

Business Week says “The China Price” are the three scariest words in U.S. industry.

The study was published by Peter Navarro, a business professor at the University of California, Irvine. A review of his work deconstructing China says, “”What Al Gore does for climate change, Peter Navarro does for China.”

Rajesh Jain’s weblog Emergic points to Knowledge@Wharton with facts and figures about China’s urbanization over the last several years.

China has $1.2 trillion of foreign exchange reserves today. Back in 1978, 20% of the people lived in the communes. Everybody was equal, but equally poor. Today we are talking about some people who make a lot of money. Now, 43% of the people live in cities and within the next 20 years, I bet your bottom dollar that the number of people living in cities in China will be the greatest migration that the world has ever seen.

Urbanization will probably hit a figure of 80%. This is unheard of, in my mind. I’ll give you an example: When I first went to Shenzhen to work there in 1979, there were only 80,000 people in that city. Today it has 10 million people. That is the number of people who have migrated to the city in the past 20 years.

China’s economic growth was driven by the manufacturing industry. Of course, the country also has a really stable government; the Communist Party controls the whole nation, and sometimes there are some hiccups, but by and large things are really stable. The stable political environment combined with a free economy – as free as the government allows it to be – has made all these successes possible.