China is often called the World’s Factory. The reason is that China is the manufacturer producer in the world. In recent years, its value soared to an annual sum of 4 trillion USD, of which 2.5 trillion USD were exported. Due to their competitive prices and wide range of products, foreign companies often choose to source from Chinese factories. Let’s dive deep into the topic of factories in China.
Characteristics of industrial production in China
Industrial production accounts for nearly 40% of China’s GDP. Additionally, China has been one of the top leaders in technological investments in the past couple of years, investing billions of USD annually. It results in a tremendous increase in automatization through the modernization of production lines and the widespread use of robots in Chinese factories.
Major industries in China include mining, energy, technology, agriculture, textiles, and construction industries. Foreign trade plays a significant role in China, as China is not only the world’s largest exporter but also the EU’s largest trade partner. In fact, China’s imports reached 362 billion EUR in 2019.
China’s competitive prices are influenced by a variety of different factors, such as:
- Skilled labor paired with relatively low wages, which leads to much lower production costs, as well as much shorter production time.
- Highly developed business ecosystem, which includes supply chains, production infrastructure and components, and technological facilities.
- Weak labor protection laws.
- Chinese tax policies are favoring the export of products.
- Access to natural resources in China.
- China’s relatively weak currency, making prices more favorable to foreign customers.
- Automatization of production in Chinese factories.
What is produced in factories in China?
No matter what it is – a similar thing was manufactured in China. In the past Chinese products were associated with cheap, low-quality items. Nowadays, Chinese factories offer a wide range of high-quality products, ranging from simple products such as buttons to more complex machinery and medical apparatus.
China’s major export industries include:
- Electronic devices – e.g. smartphones, smartwatches, computer parts, and small household appliances.
- Mechanical devices and machines – e.g. drills, car parts.
- Clothing and footwear – e.g. fabrics, fast-fashion products, accessories.
- Toys and animal accessories – e.g. interactive toys, dog beds.
- Medical devices – e.g. specialized medical equipment, pulse oximeters.
Industrial regions in China
China is known for its regional specializations. Specific categories of products are manufactured in factories closely located to one another. It makes it much easier to find suppliers in China.
The most developed industrial regions are located in special economic zones created in the 1970s. They were created to enhance China’s international trade. These regions include the Pearl River Delta, Beijing Area, and the Yangtze River Delta.
The main industrial regions in China are:
- Beijing/Tianjin – automotive, steel, pharmaceutical, petrochemical, and technology industries.
- Shanghai – automotive, electronic, textile, steel, medical and financial technologies.
- Suzhou – nanotechnology, biomedical technology, and factories manufacturing products ordered by foreign companies.
- Shaoxing/Keqiao – textile industry.
- Ningbo – electronics, clothing, plastic, paper, and lighting industries.
- Wenzhou – footwear industry.
- Nanjing – automotive, electronics, energy, and steel industries.
- Chengdu/Chongqing – electronics, automotive, machinery, and chemical industries.
- Guangzhou – various industries, ranging from toothpicks, textile, machinery parts to home decorations.
- Foshan – furniture industry.
- Shenzhen – the main center of the electronics and high-tech industries.
The advantages and disadvantages of manufacturing in factories in China
Manufacturing in China has many strengths and weaknesses. The main advantage is China’s highly competitive pricing and well-developed infrastructure. The large distance between China and its largest trade partners is one of the biggest disadvantages, which leads to a variety of different issues.
- Years of experience leading to a well-organized production process.
- Lower production costs.
- There is a bigger chance that our company to be known internationally.
- Mass manufacturing in short production time.
- A wide selection of factories (China has approximately 2.8 million production plants).
- Large distance, which leads to long transit time in most cases.
- Language barrier.
- Problems with intellectual property laws in China.
- High MOQ (Minimum Order Quantity) in many factories.
What are OEM and ODM?
OEM and ODM are two terms used to describe a situation when a company outsources production to manufacturers. The difference is mainly in the design process.
In the OEM model (Original Equipment Manufacturer), a company projects products materialized by a manufacturer. These goods are typically manufactured according to the designs and specifications provided by the contracting company. The client company thus places its logo on the final product.
In the ODM model (Original Design Manufacturer), a company designs and builds its products, which are sold to other companies. Contracting companies can introduce their modifications to already available projects and then sell them under their brand based on a license. It is also possible to commission a factory to create a specific product and its implementation process as part of an ODM.
You can choose either ODM or OEM model; many manufacturers of both types can be found in China.
Concerns relating to trade with China
It’s obvious that trading companies have to be aware of scams. Various types of fraud still occur in China on a daily basis. These include, for example, intermediaries claiming to be producers. Although there is a belief that the safest way is to place orders from large factories, smaller production plants should not be ignored. The best way is to find experienced companies that have all the necessary certificates and documents.
To avoid problems that may occur while dealing with a Chinese business partner, we recommend following these rules:
- draw up a commercial contract
- verify the supplier
- conduct a factory inspection in person or with our help
- run quality control tests at various stages of the production process
- analyze customer reviews
- order samples.
Before contacting a Chinese supplier, it may be worth specifying upfront what type of product you will be expecting. Also, make sure to agree on a price based on the quantities you will be ordering. If you are not yet decided on a specific product, we recommend first reading our post on popular export industries in China.