Everything You Need to Know about Manufacturing in China

Country Overview 

China, the largest exporter of the world’s production, sent 18 percent of its exports to the United States last year. Now $34 billion dollars worth of products are subject to a 25 percent Chinese tariff, forcing some businesses to expand their manufacturing and production outside China. 

But if the tariffs don’t apply to the goods you sell, China still offers lower production costs and more advanced production capabilities than other developing manufacturing industries.

China is arguably the most important manufacturer and industrial producer as it sells more manufacturing goods than any other country in the world. China is also a world leader in many types of goods. Especially if you’re looking to build custom product, you will save so much time and money by working with a manufacturer who specializes in your product category.

Country Costs

While China is still considered a developing nation by the WTO, its economy is now one of the biggest in the world. It’s becoming more industrialized and quickly advancing in technology and production capabilities, which has pushed the nation into more economic reform and projects like Made in China 2025. Before economic initiatives, the wealth was widely unequal, explaining why factory worker wages were competitive to countries like Vietnam.

Now, as the nation begins to improve several sectors of the economy and advance the manufacturing industry, we see wages rise. Rising wages aren’t bad unless you’re currently manufacturing in China and experiencing lower profit margins from higher production costs. You may pay more on your production run, but you also may see the quality of your products rise. You also get the advantage of stronger infrastructure, better managed factories, and advanced machinery that improves your overall production process and supply chain.

In addition to wages, another cost to consider after production is shipping cost. Under FedEx international Economy rates, we’ve compared the shipping costs to send three boxes of apparel with a customs value $30,000 (1000 units * $30 product value) from different international airports to San Diego, California:

The shipping costs don’t drastically differ among countries in Asia, but the graph shows a standard rate to ship a medium size production order. As a business, you will get better rates when you open an account and ship more over time. Due to more organized management in some of the factories in China, your manufacturer may even have its own shipping strategy so you don’t have to spend time looking at rates from different couriers. You’ll most likely end up spending less on shipping this way too.

Duties and other taxes are not calculated in the shipping cost. Especially if you’re shipping from China, it’s important to search through the harmonized tariff system codes to check for a corresponding tariff to your imported product. There are currently $34 billion dollars worth of goods subject to tariffs in the United States. Businesses importing any of these goods are paying 25 percent more to transfer them into the country.

Even if the new tariff hasn’t been imposed on your product, it’s highly likely that your product is still subject to some customs duty rate. These rates differ depending on your product, and you may also have to pay an import duty which is based on the quantity you import.

Production Capabilities

Most manufacturers in China require a high minimum order quantity (MOQ). Setting a high volume order offsets the cost of production for the manufacturer, but the MOQ gets smaller as the product gets more elaborate. Products like glassware or plush toys may have a MOQ of around 1,000 pcs, while more expensive, complex items like hardware products could have a MOQ around 200-500 pcs. As a new eCommerce startup, meeting a high MOQ may not be within your financial budget or it may not be necessary to produce so many units. However, higher MOQ usually make the per unit price less expensive.

Small factories in China may be more willing to give you a lower MOQ than larger manufacturers because they may not have as much business and don’t want to turn yours away. If you choose to work with a small business, it’s important to confirm that they can meet deadlines as well as product standards so you don’t waste money on poor quality production runs.

The quality of production mainly depends on how you source and choose your factory. There are several different sourcing methods that each have their own unique pros/cons, making one better than another for your business. There’s a misconception about the quality of Chinese manufacturing that doesn’t reflect the reality. With such a large industry, the generalization about “poor quality” only pertains to a small number of factories, and most of these are probably scams anyways.

If you look beyond the hype, you’ll see that international buyers have turned to Chinese manufacturing for years on the basis that product quality is higher than most and consistently meets expectations. With the nation also pushing to reform the industry and strive for a high level of quality in every product category, eCommerce businesses can expect to receive few, if any, poor production runs. Product recalls can be extremely expensive so knowing that the manufacturer can accurately create your product with your specifications is risk averse.

The primary reason why a buyer receives substandard products from a Chinese manufacturer is because they pushed the manufacturer to a low price. “You get what you pay for” is real when you deal with Chinese manufacturing. Be careful not to negotiate prices down too low because a reduction in price often leads to a similar reduction in the quality of the finished product. If the manufacturer isn’t paid enough to cover the production run, they are forced to make cuts that affect the design or production of your product.

Working Legally

A large manufacturing industry with hundreds of manufacturers can mean two things: you have many options to find the right fit but you are also more susceptible to manufacturing scams. A plethora of businesses fall victim to manufacturers that aren’t who they say they are. A supplier you find online may claim to be operating on a large scale basis, employing lots of workers, and equipped with enough machinery to meet large orders, but it’s difficult to verify if you can’t personally visit their production plant.

Alibaba is a famous hunting ground for factories to scam buyers by convincing them through photos that are products of Photoshop. If there’s no way to be sure about the validity of what you see online, there are a few things to review as part of a due process:

1. What companies has the manufacturer worked with in the past? Where were these companies based?

If the factory has sold to companies in the United States or Europe, they are most likely producing higher quality goods.

1. Can you review their business license?

Since the license will be in Chinese, you will need to find someone who speaks Mandarin to review it. You should also ask them to look through the AIC (Industrial and Commercial Administration Bureau) to see if the company is actually registered in the province they say they are.

While not every factory is reliable, the country’s manufacturing industry as a whole has made progressive strides in recent decades as it continues to focus on producing great products and developing world-renowned brands. More factory owners are requesting third-party product inspection services to ge an outside opinion on how to improve their quality to meet customers’ expectations. This allows them to be competitive as a manufacturer and maintain a reliable reputation among buyers.

Companies like Sourcify actively work to protect businesses by connecting them with trusted and vetted overseas factories. What you gain from sourcing through an online platform is faster communication and factory quotes, which are two huge pain points when you’re just getting started on eCommerce. You enter into a reliable, fast-paced sourcing process which is exactly what you want as a startup.