Harvard University

The "Made in China" is Much Cheaper in USA

In recent years, the price difference between China and United States attracted a lot of attention. One hot topic is: the products made in China, why the price is much cheaper in United States? Take my own experience for example, I bought a piece of Columbia brand coat in Boston downtown, which is labeled “Made in China”, the total cost is $69, which equals to 470 Yuan. But the exactly same clothes in China Beijing Wangfujing department store usually sell 1000 Yuan; the local price is two times higher than that in the U.S. Also, take iPhone 3 for example. It’s $600 (about 4000 Yuan) in the U.S.; In China, it is as high as six or seven thousand Yuan. Recently popular apple 3G version tablet PC ipad, is about $67 dollars at Harvard University computer shops (including tax, about 4,500 Yuan), and this product in Chinese market reached 6000 Yuan. The most well known case should be the famous coach handbags. In America’s suburbs brand store, a common Coach bag is about 100 dollars, but in China the price is 1,500 Yuan. Brands like Nike, Adidas, Reebok .etc, which are all Made in China products, the price in the U. S. are often half of that in China.

The huge price difference inevitably leads to a lot of arbitrage actions. In the United States outlet, Chinese purchase teams are always spectacular. The store sales persons are extremely very busy with serving those purchasers. Because Coach Bag sells very well in China, but the price is much more expensive. So they always carry full hands of bags then will come out. At that time, I can’t believe China is a developing country.

As we know, the product costs include production cost, transportation cost and cost of sales. According to the common sense, made-in-china products sold in China, its local transportation cost and the cost of sales is lower than that in United States, so the price in China should be cheaper. But now, product price in China is incredibly higher than that in United States, this is a kind of adverse price difference. We have never heard of “Beijing roast duck” is much more expensive in Beijing than other places. This is indeed an intriguing topic.

In my opinion, there are 4 main reasons responsible for this phenomenon.

1. Brand Effect and Market Demands.

Under the total market competition, the price of the product is equal to the cost plus the industry average profit. Therefore, if the cost of commodity is the same and the price is different, so it must be different profit different market structure lead to . In the market, if the product is oversupplied, the profit will be lower; if the demands are over the offer, the profit will increase. Coach handbag is a local brand in America and it is welcomed in China, a lot of Chinese people like it. So the market demand is higher than united sates.
2. Transaction Fee
New institutional economics considers the country system decides transaction costs. Therefore, the same products, even if the production cost is the same, different country system also have different transaction costs, thus different total cost is generated. Assuming exactly the same brand, if the country transaction fee is higher, the price of the product will be higher too.

3. Intellectual properties
Brand products is much more expensive, because the quality is superior.

4. Consumption Culture.
Chinese people have an unwritten rule that courtesy demands reciprocity. So they always bought a lot of superfluities as gift for their supervisor or friends.

According to my introduction, may be you are afraid of buying some made-in-China product in expensive, I would like to recommend you a nice place. dinodirect.com, It’s a famous online distributor, all the items there is much cheaper than local stores both in America and China. Take a laptop for example, it only need $1200 dollars, iPhone is about $500 dollars. Are you interest in it? Follow me!

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