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Products made in China often cost more there than in the West
The premium prices frustrate shoppers as well as those who see getting Chinese consumers to open their wallets as crucial to balancing the global economy.
By David Pierson, Los Angeles Times
July 13, 2010
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Reporting from Beijing â€”
The laptop computer Luo Guangli carried out of the Apple flagship store in Beijing was no different from the models sold in the United States. It had the same high-resolution screen, an identical processor and the same printed label on the back: "Assembled in China."
The only difference â€” besides a manual written in Chinese â€” was the price. Luo paid $2,760. That's about $460, or 20%, more than an American buyer would spend at an Apple store or buying it online.
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"It's a huge expense, but what can I do?" said Luo, a 24-year-old professional photographer who wears glasses with Buddy Holly frames.
The premium prices aren't limited to foreign-branded computers. Kobe Bryant's Nike sneakers with the Made in China label go for $165 in the U.S. But at an official Nike store in China? $190. A flat-screen Sony TV assembled by Chinese laborers runs about $800 at a Best Buy store in the U.S. But you'd pay 30% more at the popular Chinese appliance chain Gome. The same goes for that Maclaren Techno XT infant stroller. It's also manufactured here, but you'll typically pay 40% more for one at a Beijing mall than you would in the U.S.
It's a paradox of life here in the world's factory floor. The place known for delivering low-cost goods to Western consumers doesn't always do the same for its own people.
This may have been of little consequence to economists and world leaders a few years ago. But today, getting China's consumers to open their wallets is crucial to balancing a wobbly global economy grown too dependent on American and European shoppers.
It won't be easy. Chinese households are already famously frugal â€” and with good reason. A flimsy social safety net means tens of millions must save for their own education, healthcare and retirement. And while consumer spending has been rising along with China's prosperity, it has done so almost in spite of an economic model geared almost exclusively toward production rather than domestic consumption.
For example, U.S. manufacturers have long complained that the Chinese government keeps the value of its currency, the yuan, artificially low. That has boosted China's exports by making its goods cheap for foreigners to buy. But it also makes imported products expensive for Chinese consumers.
Then there are taxes and levies. That Apple laptop is made at a factory that's granted a rebate on China's 17% value added tax, as long as those computers are exported and sold abroad. Chinese buyers aren't so fortunate. Before that same machine can be sold domestically, it is first sent to Hong Kong, a special administrative region of China, then returned to the mainland with a 20% import tariff, industry experts said.
The price penalty is frustrating to savvy Chinese consumers who know what things cost elsewhere thanks to the Internet and their own shopping trips abroad.
"When I saw the prices at an outlet mall in New York, I thought it was crazy how much we were paying in China," said Joanna Tong, 22, a Beijing native who has vacationed in the U.S. "It's not fair. Now that I know the prices in the U.S., I've been reluctant to shop here at all."
Still, some foreign companies have made a conscious decision to raise their prices in China, or they've adopted a strategy of marketing their products as luxury items to make up for the higher cost of doing business. That might seem counterintuitive in a nation where the typical urban resident last year earned about $2,800. But high-priced goods carry cachet here, while China's consumer class is burgeoning. High prices can boost the prestige of some products while fattening the manufacturer's bottom line.
Take Budweiser. The beer that Joe Six-pack drinks in the U.S. is considered a premium brand in China. A can sells for about 25 cents more than local suds in grocery stores, even though it's brewed locally. Buick's LaCrosse sedan is seen by some here as a rival to the BMW 3-series. It's priced about 23% more than in the U.S., even though it's assembled in China by laborers earning a fraction of their U.S. counterparts. And Haagen-Dazs ice cream, a staple of U.S. convenience stores, can fetch $12 a pint in some upscale cafes in China.
"In China, people equate high prices with high quality," said Shuan Rein, managing director of China Market Research. "Brands know that if their products are too cheap it will push consumers away."
The psychology, analysts say, is about making aspiring consumers feel like they're buying a piece of the middle class. The pull can be even stronger when Chinese purchase gifts to show respect.
"If I'm buying for friends or clients, I could never buy a Chinese brand," advertising agent Liu Hao said. "It's about face."
The painstaking task of moving goods around the country is another factor driving up prices.
Logistics companies rarely consist of more than a handful of employees and a single truck, said William McCahill, vice chairman of Pacific Epoch, a Shanghai-based research firm. Freight carriers often are reluctant to cross provincial borders because of local fees, meaning that goods often have to pass from one distributor to another, depending on geography.
"There is no national logistics system," McCahill said. "Dell has a plant in Xiamen where all the suppliers have to be a bicycle ride away."
Still, there is some hopeful news for Chinese consumers. The government said last month that it would allow a more flexible exchange rate for the yuan. Trading partners hope that will lead to a stronger currency, enabling Chinese businesses and households to purchase more imported goods. And a wave of labor unrest in recent months in China has heightened calls for wage increases to boost domestic purchasing power.
"An economy with weak consumption is not sustainable," said Wang Xuanqing, a Ministry of Commerce official, at a conference of retailers last month.
In the meantime, resourceful Chinese shoppers are finding ways to skirt the higher prices.
Although knockoffs are common, the so-called gray market is also thriving, particularly online. There sellers peddle discounted luxury handbags, Apple gadgets and other authentic brand-name consumer goods acquired abroad.
"Chinese people will always want a bargain," said Wang Da, who sells Coach bags on the popular e-commerce site Taobao. "More and more people are traveling and telling their friends they can get things cheaper overseas."
Wang has a network of 30 runners who travel to the U.S., visiting California, New Jersey, Florida and other states, and bring back purses, clutches and wallets. He said almost all of these goods were manufactured in Chinese factories.
"Yes, I realize it's ironic," Wang said.
Nicole Liu and Tommy Yang in the Times' Beijing bureau contributed to this report.
Copyright Â© 2010, The Los Angeles Times
comments from one reader:
RichChrono at 1:57 PM July 13, 2010
This phenomena is not limited to China. It also exists in the Philippines (and many other third world economies) for the same reasons: VAT and cache.
I own several companies, one of which is in the Philippines. If I needed quality items for PI and they were small enough to fit in a suitcase, they were always purchased in the US. Whether the items were made in PI or China, I was able to get the same or higher quality for less than half of what was available in PI, especially for electronics. Like China, every level of the PI economy is hit with a 12% VAT, from office space to distribution to transportation as well as retail.
It's the average worker that has to pay for all this. I feel bad for them. They don't have a chance. It's the politicians getting fat off of this.
The same thing happens in Thailand as well. The cost of an apple computer here is ridiculous. Electronics tend to be overpriced although the price of PC components has been getting better over the years thanks to fierce competition from OEM style PC outlets opening up in those big PC mall shopping centers.
The worst are U.S. or European name brand cosmetics or clothing though.
The reason why the government and companies raise the price so high is because they know the middle and upper class can shell out the cash no matter what. It's really a tax on the middle class if you think about it. Although the irony is the people who really are filthy rich can buy all those items at a substantial discount due to being able to travel quite frequently.