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Made In China Doesn't Mean Cheap In China

Nov 22, 2011
Originally published on November 23, 2011 6:21 pm

China has made a fortune producing cheap products that sell for low prices around the world.

Yet many high-end goods manufactured in China –- everything from iPads to Coach bags — actually cost more in China than they do in the United States.

To figure out why, I recently visited a luxury shopping mall in Beijing with Professor Nie Huihua, who teaches economics at the People's University.

We went to the sixth floor of the mall, where Apple products were being sold, including an iPad 2 that was going for $700. The same iPad 2 costs $499 at an Apple store in Washington, D.C.

We then went to a Columbia sportswear store to get some prices. There was a blue backpack, called the Trail Grinder, which wasn't very big and was selling for 1,399 Chinese yuan — or about $220. Back in the U.S., that made-in-China backpack retails for just $139.

Graft Contributes To High Prices

Nie says products like this cost more in China because of the country's high transportation fees and local government corruption.

Last year, a trucker in East China's Henan Province was caught using fake military license plates to avoid paying tolls along a 110-mile stretch of road. It's easy to see why: Tolls and fees for a single trip are $230.

"It is impossible for him to make a profit if he pays all the tolls and fees legally," Nie says.

Paul French, chief China strategist for Access Asia-Mintel, a consumer analysis firm, says local governments can continue to gouge truckers because China is still essentially a state-run economy.

"In a market economy, those things will work themselves out," French said. "People will push to reduce those costs. It's just not possible to do that in China. You can buy all the trucks you want. What you can't get rid of is local officials that are on the graft."

China Imposes High Taxes

Another reason high-end goods cost more here is because China taxes them so much. But in a market loaded with fakes, wealthy Chinese are willing to pay a premium for authentic products they can show off.

"At the high end of the market, there is also a certain, kind of flash-for-cash culture," French said. "It doesn't really matter what the price is. The whole point is to be seen to pay and to be able to pay."

Because of the price differential, many Chinese buy luxury goods when traveling overseas.

On a recent trip to New York, a woman named Ling, who didn't want her full name used, went bargain hunting for a Gucci bag on Fifth Avenue.

Ling, who works for an Internet company, still had to shell out $1,000, but she says she thinks she got a good deal compared to what she would have paid in China.

Like other Chinese, she asks friends traveling abroad to buy items for her, including clothes.

Even inside China, products can sell for very different prices.

Luxury goods are cheaper in Hong Kong, which is part of China but doesn't have a luxury tax. Recently, police nabbed a couple trying to smuggle hundreds of thousand of dollars in merchandise from Hong Kong onto the mainland. The stash included Prada handbags, Cartier jewelry and four iPhones.

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As we know, China has made a fortune producing cheap products that sell for low prices around the world. But it turns out that many higher-end items manufactured in China - everything from iPads to Coach bags - actually cost more to buy in China than they do here in the United States. NPR's Frank Langfitt hit one of China's more lavish malls to find out why.

FRANK LANGFITT, BYLINE: I'm strolling around a Beijing luxury shopping center with Professor Nie Huihua. He teaches economics at People's University, and he's been looking at the different prices for the same products in China and the United States. One of the places we're going to look at first are Apple products here up on the sixth floor. Okay. This is...

NIE HUIHUA: iPad 2.

LANGFITT: It's the iPad 2. (Foreign language spoken)

HUIHUA: 4,688.

LANGFITT: That's over $700 - very pricey. What do you think that costs in America?

HUIHUA: About $500.

LANGFITT: Almost. That same iPad 2 costs $499 in an Apple Store in Washington, D.C. We're now in a Columbia sportswear store looking at some of the clothing and getting some prices. I've got a Columbia backpack. It's called the Trail Grinder. It's 1,399 quai, and it's blue and it's not very big. 1,399 quai, or Chinese yuan, is about $220. Back in the U.S., that made-in-China backpack retails for just $139.

Professor Nie says products like this cost more in China because of the country's high transport fees and local government corruption. Last year, a trucker in East China's Henan Province was caught using fake military license plates to avoid paying tolls along the 110-mile stretch of road, with good reason. Tolls and fees for a single trip: $230. Here's Professor Nie.

HUIHUA: It is impossible for him to get any profit if he pays all the tolls and fees legally.

LANGFITT: Paul French is chief China strategist for Access Asia-Mintel, a consumer analysis firm. He says local governments can continue to gouge truckers, because China is still essentially a state-run economy.

PAUL FRENCH: In a market economy, those things will work themselves out because people will push to reduce those costs. It's just not possible to do that in China. You can buy all the trucks you want. What you can't get rid of is local officials that are on the graft.

LANGFITT: Another reason high-end goods cost more here is because China taxes them so much. But in a market loaded with fakes, wealthy Chinese are willing to pay a premium for authentic products they can show off. Again, Paul French.

FRENCH: At the high end of the market, there is also a certain, what we would call a kind of flash-for-cash culture, that it doesn't really matter what the price is. The whole point is to be seen to pay and to be able to pay.

LANGFITT: Because of the price differential, many Chinese buy luxury goods when traveling overseas, with sometimes incongruous results. On a recent trip to New York, a woman named Ling went bargain-hunting for a Gucci bag on Fifth Avenue.

LING: Because it's, like, 30 percent cheaper if I bought the same bag in China.

LANGFITT: Ling - she didn't want her full name used - still had to shell out 1,000 bucks, but she thinks she got a good deal. Ling works for an Internet company. Like other Chinese, she asks friends traveling abroad to buy items for her, including clothes.

LING: Actually, my boss, he just come back from the U.S., and I have a very long list to him, but he didn't buy anything for me because the size difference. I need to try the clothes before I pay for it. And he's a lazy man.

LANGFITT: Even inside China, products can sell for very different prices. Luxury goods are cheaper in Hong Kong, which is part of China, but doesn't have a luxury tax. Recently, police nabbed a couple trying to smuggle hundreds of thousands of dollars in merchandise from Hong Kong onto the mainland. The stash included Prada handbags, Cartier jewelry and four iPhones. Frank Langfitt, NPR News, Shanghai. Transcript provided by NPR, Copyright NPR.