Author Topic: Why is Shenzhen the king of cheap?  (Read 3636 times)

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Offline nick_d

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Re: Why is Shenzhen the king of cheap?
« Reply #50 on: February 24, 2019, 10:24:36 am »
Disregarding the ebay / ali fake market for a moment and just talking about Shenzhen, well from what I understand Shenzhen is a "special economic zone" which means that ordinary capitalistic policies apply, unlike in other parts of China where state owned enterprises are still quite big and it can be hard to get permission to run a normal business, as well as having to deal with taxes and bribery etc. In effect you could consider Shenzhen like China's "duty free store" -- in the sense that countries lose no tax revenue by offering duty free purchases to travellers who are going to a lower taxing jurisdiction anyway and clearly wouldn't buy the local stuff unless they were offered some sort of inducement. The special position occupied by Shenzhen and other special economic zones is kind of like Hong Kong used to be, except that Hong Kong is getting more heavily regulated these days. Probably that's for political reasons, since Hong Kong-ese have had a taste of freedom and would like it back.

And, why do ordinary capitalistic policies result in much lower prices for everything? Simply that, in the 20th and 21st century in Western countries we have not had ordinary capitalistic policies, we've had a so-called mixed economy where there is lots of central planning (consider AmTrak for instance, compared with the 19th century way where different railroads actually competed with each other), there are extremely high taxes by historic standards, minimum wages, and many employee-friendly but business-hurting policies (401k, paid holiday leave, medical insurance and so forth). Furthermore everything is tightly regulated, less so in the electronics and IT industries, but it still hurts innovation, for instance you cannot enter the PSU market unless you're willing to pay for a $50,000 fee for testing, so you need really high volumes and deep pockets right out of the gate.

Another thing to consider is the double, triple, quadruple, ... dipping indulged in by Western governments. You get paid, and 30-40% of it goes in income tax, but now when you buy something there is sales tax, and if for instance it's fuel there is fuel excise... and now suppose you pay your mobile phone bill with the money that's already income taxed, well 75% of that money goes straight to the spectrum pricing doesn't it. And the same applies to everything you buy. In the case of companies trading with each other, if 100 companies contribute to your cup of coffee (one makes cardboard, another makes glue, another grows beans, another buys and roasts them, another buys and imports, ...) then EACH of those companies must pay company tax, admittedly this is only applied to profits but they could take much less profits if not taxed.

Given the situation in China where the Government more or less gets out of the way and allows manufacturing to happen as cheaply as possible (since it benefits the bigwigs to have the resulting foreign exchange flow into the country), and the domestic market is not so over-taxed and over-regulated that basic staples like rice cost a fortune like they do here... the Chinese are able to produce things AT THE PRICE THAT THEY WOULD BE PRODUCED HERE IF GOVERNMENT WOULD GET OUT OF THE WAY. The free market price is literally 10s or 100s of times less than the actual price seen in Western democracies, because of the double, triple, quadruple, ... dipping phenomenon and all the business hurting regulation. It's really only the politicians and those whose pension funds are invested in the incumbent, inefficient industrial concerns that benefit from such policies.

cheers, Nick

edit: change unpaid to paid holiday leave, typo

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