Why are Chinese products so inexpensive?

Zakki P. Hakim, The Jakarta Post, Jakarta

A set of "Made-in China" needles is sold for Rp 1,000 (about 10 U.S. cents). Taking into account the raw material cost, the shipping cost to Indonesia and margin for distributors, what is left for the Chinese factory workers?

Interesting question. And, here are some answers The Jakarta Post compiled from numerous equally curious local businessmen, who have visited China to see the situation in person.

First of all, Chinese workers do not have to worry about paying for homes. Their government provides dormitories practically next to their factories, where they are working, which also means no transportation expenses.

Second, China really nurtures its small and medium enterprises. Its government provides incentives to encourage small manufacturers to develop specialized skills to a degree that makes them very cost-efficient.

The small manufacturers are also supported by raw material suppliers of the same size so that they can be competitive with larger concerns.

In China, small workshop owners can easily procure any raw material required, but they do not have to buy in bulk volumes. They can just buy one item at a small retail shop for the same price of buying in bulk.

China, however, encourages the small workshops to maintain their size to prevent them from being trapped into handling administrative rather than production problems.

Such an efficient system produces inexpensive motorcycles that once flooded Indonesia.

The workshops are so efficient, they can adjust their products according to a customer's budget. If Indonesian traders ordered cheap motorbikes, the workshops then delivered end-products with down-graded quality to match the budget of buyers here.

The workshops are so specialized and customized and have the attitude to make what they can sell, not sell what they make -- although they are capable of producing high-quality, but consequently, more expensive goods.

On a bigger scale, the Chinese government has a long-term and detailed plan for the development of its manufacturing sector, which includes availing of all technologies introduced to the country by investors.

For example, the Chinese government sends 5,000 people to work in one industrial cluster full of foreign factories. After a certain period, it then moves the workers to various clusters of domestic factories, to which they bring their newly acquired skills.

China's human resources are mostly skilled and specialized, thus, they are much more productive than Indonesian workers, especially in terms of output per hour at a relatively similar labor cost.

To support its manufacturing sector, China has also invested, in a massive way, in infrastructure projects such as roads, ports, power stations and properties like housing for its workers.

Not to mention, according to several businessmen, China also provides direct subsidies to local exporters, giving them cash just to export Chinese products -- in addition to a variety of other fiscal incentives.

So what is the reward for the Chinese workers?

China has transformed itself --in such a way to earn the nickname "the world's workshop"-- as part to its grand strategy in quadrupling its 2000 GDP per capita to reach US$3,000 by 2020.

The nickname, at least, illustrates that its workers would not have to worry about job availability, as China has been able to successfully attract investments and orders from around the world, ensuring a bright future of prosperity for all Chinese people.