You might think government subsidies are the main reason, but that’s not the case. There are several key factors that enable China to produce cheaper goods.
▌1. Supply Chain Efficiency
China is often referred to as the "World's Factory" because it has a highly developed and integrated supply chain. Chinese factories operate at a much larger scale than those in most other countries.
Products made in China meet about 28-30% of global demand, with even higher market shares in certain categories. For example, electronics, toys, plastics, photovoltaic products, and lithium-ion batteries account for around 70% of the global market.
While India may have lower labor costs, China's workforce is more experienced in mass production techniques, leading to higher productivity and lower labor-related costs. India’s supply chain is still developing, and its efficiency in materials sourcing, production processes, and overall scale is not as streamlined as China’s.
▌2. Infrastructure
India’s infrastructure—whether in terms of water and electricity, road transportation, or telecommunications—still has significant room for improvement.
Due to limited funding, it’s common for construction projects in India to halt halfway, as resources are redirected to other priorities.
In contrast, China has undergone massive infrastructure development, resulting in greater stability in power and water supply for production, as well as more predictable transportation times. India faces many challenges in these areas, and overall, it still has a long way to go in terms of operational efficiency.
▌3. Government Incentives and Deflation
China has long provided substantial subsidies, but these are often reserved for national enterprises or a few large corporations.
Some private companies hire low-paid labor, expose workers to poor conditions, and use inferior materials to produce cheaper products. These practices fuel the supply chains of companies like Shein and Temu.
In 2023, some Chinese companies anticipated an economic recovery and expanded production capacity. However, as the economy stalled in 2024, unemployment rose, and consumer spending shifted from high consumption to saving.
Many goods produced for larger-scale operations could not be sold domestically. As a result, these companies turned to export their products at rock-bottom prices to international markets.
▌In Conclusion:
Due to these three key factors—supply chain efficiency, infrastructure, and government incentives—India still has a long way to go before it can compete with the low-cost goods produced in China. Even when products are not labeled as "Made in China," many of their raw materials often originate there.
Supply chain shifts take time, and China’s dominance won’t fade overnight.
What do you think? Feel free to share your thoughts below.
