Niehui Hua *
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one, the same product, different prices
In recent years, the price difference between the two countries caused a lot of attention. One popular question is: the same products made in China, why the United States sold cheaper than in China? For example, I own shopping centers in downtown Boston Massey bought a Columbia (Columbia) brand down jacket, above the clearly marked “Made in China” (in China), the price is 69 dollars, equivalent to about RMB 470 yuan. However, the same clothes in Beijing, China Wangfujing shopping malls are usually sold for $ 1000, twice as high than the United States. Apple is also a Chinese-made mobile phone iPhone 3, in the United States to sell $ 600 (about 4,000 dollars) in China is as high as 6,7 thousand dollars. Recent version of the popular Apple 3G Tablet PC iPad, my computer at Harvard University to spend $ 670 in stores (including tax, about 4,500 dollars) to buy one, and this product in the Chinese market has more than $ 6,000 Scoop. The most well-known case is the famous Coach (Kou Chi) a bag. Brand in the U.S. suburban outlets (outlet), an ordinary Coach bag about 100 dollars, but in China the price as high as 1,500 yuan, has doubled. Similar products have Nike, Adidas, Reebok and other Chinese-made clothing and sports shoes brand, they are often less than the price in the U.S. half of China.
huge difference in price will inevitably lead to a large number of arbitrageurs. In the U.S. outlet, the Chinese procurement team often spectacular, lavish, sweeping the major brands, simply Rulangsihu. I witnessed a bunch of Chinese people from a Chinese tourist Barry out, and then directly kill the Coach store, so Coach at the door waiting in long lines at once, while half the team are Chinese. The store clerk is too busy to wait for them to speak Chinese at the moment. Because Coach bag spreads too much, and very popular, so often a Chinese person have to have his hands full of packages carry it out. It is said that some local Coach stores have regulations, each person can only buy 10! At that moment, I suspect China is not a developing country.
we know the costs of products, including production costs, transportation costs and marketing costs. According to common sense, Chinese-made products sold locally in China, its transportation costs and marketing costs are certainly higher than the cost in the United States is lower then the price is naturally more expensive in China. Exporter of the product actually more expensive than the input ground, which is a reverse of the price difference. We have never heard of “Beijing Duck” more expensive than the field in Beijing, have not heard of “Nanfeng Orange” in Jiangxi more expensive than in Beijing. Why some locally manufactured products in the local sales but more expensive than the field it? This is indeed an interesting topic.
two different systems, different transaction costs
recently, “Beijing News” in a report [①] quoted some experts view that is China export tax rebate policy has led to Chinese-made products cheaper abroad. After several adjustments, the overall Chinese export tax rebate rate from the original 9.8% to 13.5% now, some of the goods up to 17%. Some experts believe that the export tax rebate equivalent to the Government for a number of export subsidies, the costs and prices of these commodities can be less than the domestic like product. I think this is not convincing. First, even if the net tax subsidies, the U.S. commodities are still much cheaper than Chinese goods, which they spread out more than how to explain it? Secondly, although these exports enjoy the Chinese government export subsidies, but the U.S. government should impose import duties on them. Suppose the United States Customs and China were flat, then a minus one plus, are also considered offset.
according to my own observations, I think there are four reasons for this reverse the price difference.
First, the brand effect. In the full market competition, product price equal to cost plus industry average profits. Therefore, if the cost of the same two commodities, the price difference, then it must lead to profit in different market structure is different. Oversupply in the market, the relatively meager profits of the product; in a tight market, the profits of the product is relatively abundant. This is one of the most direct explanation. To widely welcomed by the Chinese women Coach bag, for example. China as a developing country, the trend of consumption is to go along with Western countries. There is a saying that Western countries today is China tomorrow. Chinese women feel that Coach bag fashion, trend, to have this famous brand as a status symbol, leading to a valuable commodity in China, Coach bag, naturally in short supply, so that the brand owner profits. In the developed market economy of the United States, Coach handbags brand name though, but generally only count up to second-tier brands, the real brands are Gucci (Gucci) and LV (Louis Vuitton). Coach is a U.S. brand, Gucci is Italian brand, while the LV is a French brand. And most of the luxury, like a true leader in the trend of the product or in Europe, rather than in the United States. A friend of mine to play an interesting example, if Gucci is the Wangfujing Grand Hotel, then the Coach can only be a people congress next to the angel Simon restaurants. Americans buy a Coach bag, like to buy household appliances. So, Coach bag earn excess profits of Americans, only to make the Chinese people. In fact, even the Coach bag, can be divided into fashion and general style. In such a discount outlets outlet sales, often ordinary style, and popular style is not immediately sell at a discount. This creates a false impression, that the Chinese people in the United States picked up a great deal, in fact, picking up a bargain. Nike, Adidas, Reebok and other sports clothing and shoes, also in line with similar logic.
A related issue is that, like Coach bag such products, how to say can be considered famous, why they earn profits in the United States do? In my opinion, the U.S. industrial structure. In a fully competitive market, once an enterprise by reducing costs or innovative products to win the competition, and it can acquire other companies through large-scale expansion, because other companies can not survive. The so-called “winner-take-all” The fact is the inevitable result of full competition. After a long struggle for existence, for each industry on a few brands can only compete with each other. For example, sports apparel by Nike and Adidas split the world, carbonated beverage industry, Coca-Cola and Pepsi by the divide and rule, while the bag industry from Gucci, LV, Fendi and Coach semi-finals rule the roost. Once the winning companies brand reputation, massive expansion, with the economies of scale and scope economies, cost of natural decrease, so the price is reduced accordingly. Such as the Global Fortune 500 leader Wal-Mart, relies not on high profit, but puerile. But China is a country in transition, many state-owned enterprise losses can not quit, a lot of money, but the expansion of private profit, resources, there is a large degree of misplacement, and thus difficult to form a big brand, big expansion, low-cost, low-margin virtuous circle . Therefore, the same brand, but its premium brand in the United States less than a premium brand in China. However, if a Chinese-made products are not the U.S. brand, sold in China than the U.S. but a higher price, you need to have other explanations.
Second, the transaction costs. New Institutional Economics that the system determines the transaction costs. Therefore, the same product, even if the cost of production the same, different systems of countries will have different transaction costs, creating a different total cost. Assumes exactly the same as a premium brand, the higher transaction costs the state will have higher product prices. This mainly refers to the government transaction costs of maintenance costs on the market. Suppose a factory in Dongguan, Guangdong produced a number of shirts, it can choose to export to the United States by sea, you can choose delivery by road to Beijing. Although relatively close to Guangzhou to Beijing, but said more was done, found along the mainland brought a variety of fees and transportation costs of bribes actually exceed the cost of exports to the United States! I believe that this is not a fantasy, just think how many toll way you can understand. In fact, transportation costs, after all, certainty, and more uncertainty and transaction costs from the pre-post transaction costs. Rampant in the relationship between the Chinese market, a factory to get orders for domestic enterprises, how much time and money to send gifts to? Finally got the orders, but also how much time and money to get the money? Instead, foreign companies doing business with, as long as the other study determined the relationship, often a paper fax to solve the problem. These deal with domestic enterprises, “research costs”, in fact, be counted in the cost of production. So, simply put the same product have the same cost of production, domestic sales of this business is not fair. The domestic market is opaque, irregular, unreasonable led to high transaction costs and system operating costs, thus eroding the profit margins of domestic products, the price only gone up.
produced as Lenovo Thinkpad notebook computer products, was acquired from IBM hands came back, completely manufactured in China, now is not the U.S. brand name , but its price is relatively cheap in the United States. Brand premium can not fully explain this phenomenon, because Chinese consumers the same price as in the case in the majority would prefer HP, Dell, Apple and other foreign brands. I think this case typically reflects the difference in transaction costs. Trade association in the country is doing started, it should be said has invested heavily in the channel. But it is in China, and many businesses and government departments are, therefore cost of sales, loan recovery costs and service costs that are not low. Selling computers in the United States is relatively simple, a company that has signed an agreement with partners, most transactions are conducted through the website. Consumers to buy computers, first check the Internet, then call or book through e-commerce systems, and online payment, then waiting for postal delivery or delivery department. If consumers are not satisfied, you can return unconditionally within a certain period. Harvard Science Complex Building basement has a computer store, only two or three employees, Monday to Friday during the day, which exhibits most of the goods, getting goods require online or telephone booking. I want to buy a Thinkpad power cord, they say no, so I ordered directly from the Internet. Chinese consumers may be accustomed to such “non-human” service, but for manufacturers and vendors, the cost is greatly reduced. You know, the United States is the most expensive human services, because few people.
Third, the intellectual property rights. Transaction costs mentioned above are visible direct costs can be directly included in the price. But there is one category of cost can not be calculated directly but must be included in the final price in, and this is the cost of protecting intellectual property rights. The reason why there is a premium brand, mainly because it is better quality. High quality from the enterprise continuous innovation and enormous human and material investment. If a country lacks a system to protect intellectual property, business will not dare to take risks to innovate, but only to produce products that offer quick and tough to obtain short-term profit margin, or simply to help foreign brand OEM, hand over the profits. Microsoft, the United States such a great business, because the U.S. has improved protection of intellectual property laws. Microsoft has thirty states and the United States and the Federal Department of Justice courtroom showdown. If in China, according to a university teacher of my words, “a police station, it can be extinguished.” If the government can protect corporate intellectual property, the market would not have so many fake and shoddy goods, enterprises with market expansion can be achieved, which like the United States to form large-scale production, and ultimately benefit consumers through lower prices. Last summer I travel to Suzhou to see many local shops selling silk, “hand-embroidery.” In fact, careful observation can be found, those works are handmade furnishings, the sale of all real production machine. We all know that this is the production of the machine, it is very difficult to sell at high prices, so you can buy a few pieces of money. When large-scale machine products occupy the market, the company even wanted to produce high quality handmade products, there are a few consumers will believe it? Late last year, I was in Japan Tokyo Narita airport transfer, airport shops that sell some of the Japanese hand-made embroidery, marked with a hand-crafted official certification, a handkerchief about to sell a few hundred yuan. Hatchback comparison, I am strong feelings. This spreads several hundred dollars, in fact, the cost of protecting intellectual property rights. If the government can not effectively protect their intellectual property products, not only difficult to become a national brand-name product, but also his country reduced to a brand of wage earners. Especially now, “cottage culture” prevalent, people are not ashamed to violate intellectual property rights, anti-thought-wing, seeking only short-term interests, is bound to lose long-term market. Yes, cultural factors, this is what I want to talk about the fourth reason.
Fourth, the consumer culture. Chinese people are probably afraid of the poor, so once the money, we must show off their wealth; even money, in order to behave the money, but also spend a large expense to show off their wealth, which is a deformed culture. It is said that a lot of girls in school in order to buy a LV bag, you can reluctantly go hungry eat instant noodles for several months. Many companies low-level white-collar workers, receive the wages to buy luxury goods, especially purses. Think about it, if an ordinary staff member one day to buy a Coach bag, then her head must be thrown away before more expensive to buy a Coach bag, Gucci bag, and then see high-level supervisor, like middle managers actually take her style bag, will have to buy a more expensive high-end handbags. This blind, single standard of competition, is the low-income Chinese luxury goods market in an aggressive growth disproportionately cultural background. Last year, the financial crisis, LV global markets are in decline, but in China market has doubled explosive growth. After all, there are so many Chinese people to show off their wealth, there are so many Chinese people to give gifts, real money pours is not surprising. Americans comparisons, but they are more like than different. Do you have this kind of thing, I have to have something else. This pursuit of individual and cultural, to eliminate the “all the people buying LV” the vulgar culture.
article was published in “The Economist cafe” 2010 Series 4 (total Series No. 48).
* The author is associate professor of Renmin University of China School of Economics, Harvard University in the United States for one year post-doctoral research in the Department of Economics.
[①] “Made in China cheaper abroad, the experts called on the export tax rebate rate cut”, “Beijing News”, 2010 May 5 days.
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