In recent years, the price difference between China and the United States has attracted many people's attention. One of the hot issues is: Why are products made in China cheaper in the United States than in China? For example, I bought a Columbia down jacket at Macy's in downtown Boston, which was clearly marked "Made in China". The price is $69, equivalent to RMB about 470 yuan. The same clothes usually cost 1000 yuan in Wangfujing Shopping Mall in China, which is more than twice as expensive as that in the United States. The iPhone 3, also made in China, costs 600 dollars (about 4,000 yuan) in the United States and as much as 6,000 yuan or 7,000 yuan in China. Recently, Apple's 3G tablet iPad is very popular. I bought a $670 (including tax, about 4,500 yuan) in the computer store of Harvard University, and this product has been fried to more than 6,000 yuan in the China market. The most famous case should be the famous Coach leather bag. In outlet stores in the suburbs of the United States, the price of an ordinary coach bag is about 100, but in China, the price is as high as about 1500, which has doubled. Similar products include clothes and sports shoes made in China, such as Nike, Adidas and Reebok. Their prices in the United States are usually less than half that in China.

The huge price difference will inevitably produce a large number of arbitrageurs. In American Outlets, the purchasing team of China people is often spectacular and rich, sweeping the major brands like a wolf. I witnessed a bunch of China people get out of a tourist bus in China, and then killed them directly in Coach's shop, so that there was a long line at the front of Coach's shop, half of them were from China. The salesgirl in the shop is very busy, and now she can't wait to speak Chinese. Because the price difference of Coach bags is too big and they are very popular, a China person often comes out with a bag in both hands. It is said that coach shops in some places have to stipulate that everyone can only buy 10 at most! At that moment, I even doubted whether China was still a developing country.

As we know, the cost of products includes production cost, transportation cost and sales cost. According to common sense, if the products made in China are sold locally in China, their transportation costs and sales costs are definitely lower than those in the United States, so the prices are naturally cheaper in China. The export place of products is actually more expensive than the import place, which is a reverse price difference. We have never heard that "Beijing Roast Duck" is more expensive in Beijing than in other places, nor that "Nanfeng Tangerine" is more expensive in Jiangxi than in Beijing. Then why are some locally made products more expensive to sell locally than in other places? This is indeed an intriguing topic.

Second, different systems have different transaction costs.

A recent report in the Beijing News [1] quoted some experts' views that China's export tax rebate policy made products made in China cheaper abroad. After several adjustments, the comprehensive tax rebate rate of China's export commodities has increased from 9.8% to 13.5%, and some commodities have reached 17%. Some experts believe that export tax rebate is equivalent to government subsidies for some export commodities, so the cost and price of these commodities can be lower than domestic similar products. I think this view is unconvincing. First of all, even after deducting the tax rebate subsidy, American goods are much cheaper than China goods. How to explain these extra price differences? Secondly, although these export commodities enjoy export subsidies from the China government, the US government will impose import tariffs on them. Assuming that the tariffs in the United States are the same as those in China, a reduction of one plus will offset them.

According to my own observation, I think there are four reasons for this reverse price difference.

First, the brand effect. Under the full market competition, the price of the product is equal to the cost plus the average profit of the industry. Therefore, if the cost of two commodities is the same, but the price is different, then it must be the different market structure that leads to different profits. In the market where supply exceeds demand, the profit of products is relatively meager; In the market where demand exceeds supply, the profit of products is relatively rich. This is the most direct explanation. Take Coach bag, which is deeply loved by women in China, as an example. As a developing country, China's consumption trend follows that of western developed countries. There is a saying that today in western countries is China's tomorrow. Women in China think Coach bags are fashionable and trendy, and regard owning this brand-name bag as a status symbol. Therefore, there are few Coach bags in China, which can't meet the demand, which makes the brand owners get huge profits. In the United States with developed market economy, Coach is a well-known brand of leather bags, but it can only be regarded as a second-line brand at most. The real first-line brands are Gucci and LV. Coach is a famous American brand, Gucci is an Italian brand and LV is a French brand. Like most luxury goods, the products that really lead the trend are still in Europe, not in America. A friend made an interesting analogy. If Gucci is Wangfujing Hotel, Coach can only be an angel restaurant next to the West Gate of the National People's Congress. Americans buy Coach bags, just like buying household appliances. Therefore, Coach can't earn excess profits from Americans, but only from China. In fact, even Coach bags are divided into popular styles and ordinary styles. Discount outlets like outlets often sell ordinary styles, while popular styles will not be sold at a discount immediately. This creates an illusion that China people think that they got a bargain in the United States, but they actually got a bargain. Nike, Adidas, Reebok and other sportswear and sports shoes also conform to similar logic.

A related question is, products like Coach bags are famous brands. Why can't they make huge profits in the United States? I think this has something to do with the industrial structure of the United States. In a fully competitive market, once an enterprise wins the competition by reducing costs or innovating products, it can expand on a large scale by acquiring other enterprises, because other enterprises simply cannot survive. The so-called "winner takes all" is actually the inevitable result of full competition. After long-term survival competition, only a few brands in each industry can compete with each other. For example, the sports and clothing industries are equally divided by Nike and Adidas, the carbonated beverage industry is divided by Coca-Cola and Pepsi, and the leather bag industry is dominated by Gucci, LV, Fendi and Coach. Once the winning bidder has established a brand reputation and expanded on a large scale, with economies of scale and scope, the cost will naturally decrease, so the selling price will also decrease accordingly. For example, Wal-Mart, the world's top 500 chain store, relies not on high profits, but on small profits but quick turnover. China is a country in transition. Many state-owned enterprises can't quit at a loss, but many private enterprises have no money to expand when they are profitable. The resources are largely misplaced, so it is difficult to form a virtuous circle of big brands, large expansion, low cost and low profit. So it is also a famous brand product, but the brand premium in the United States is lower than that in China. However, if a product made in China is not a famous American brand, but the price in China is higher than that in the United States, other explanations are needed.

Second, transaction costs. According to the new institutional economics, the system determines the transaction cost. Therefore, the same product, even if the production cost is the same, will have different transaction costs in countries with different systems, thus forming different total costs. Assuming that the brand premium is exactly the same, the higher the transaction cost, the higher the product price. The transaction cost here mainly refers to the maintenance cost of the government to the market. Suppose a factory in Dongguan, Guangdong produces a batch of shirts, which can be exported to the United States by sea or transported to Beijing by land. Although Guangzhou is close to Beijing, it is said that some people have made a comparison and found that the transportation cost brought by various charges and bribes along the mainland actually exceeds the cost of exporting to the United States! I believe this is not a fantasy, just think about how many toll stations there are along the way. In fact, transportation costs are deterministic after all, and more uncertainty comes from transaction costs before and after. How much time and financial resources does it take for a factory to treat guests and give gifts to get orders from domestic enterprises in China market? Orders are hard to get. How much time and financial resources will it take to get the payment? On the contrary, when doing business with a foreign company, a fax can often solve the problem as long as the other party determines the cooperative relationship after inspection. These "research expenses" dealing with domestic enterprises should actually be included in the production cost. Therefore, it is unfair to domestic sales enterprises to simply say that the production cost of the same product is the same. It is the opaque, irregular and unreasonable domestic market that leads to high transaction costs and system operating costs, thus eroding the profit space of domestic products, and the price can only rise.

Lenovo's Thinkpad notebook computer products, bought from IBM, are completely produced in China, and now they are not American famous brands, but the price in the United States is still relatively cheap. Brand premium can't fully explain this phenomenon, because most consumers in China prefer foreign brands such as Hewlett-Packard, Dell and Apple with the same price. I think this example typically reflects the difference in transaction costs. Lenovo started as a trader in China, so it should be said that it invested heavily in channels. But in China, many businesses are in cooperation with government departments, so the cost of sales, payment recovery and after-sales service is definitely high. It's easier to sell computers in America. As long as the company has signed an agreement with its partners, most transactions are conducted through the website. Consumers want to buy a computer, first check it online, then make an appointment by telephone or e-commerce system, pay online, and then wait for delivery by postal or delivery departments. If consumers are not satisfied, they can return the goods unconditionally within a certain period of time. There is a computer shop in the basement of Harvard University Science Complex, and only two or three employees are working during the day from Monday to Friday. Most of the goods inside are exhibits, and you need to make an appointment online or by phone to get the goods. I want to buy a Thinkpad power cord, but they all say no. Let me order directly from the internet. China consumers may not be used to this "inhuman" service, but for manufacturers and sellers, the cost is greatly reduced. You know, the most expensive thing in America is human service, because there are few people.

Third, intellectual property rights. The transaction costs mentioned above are all visible direct costs and can be directly included in the price. However, there is a kind of cost that cannot be directly calculated but must be included in the final price, and that is the cost of protecting intellectual property rights. Brand-name products have a premium mainly because of their better quality. The lofty quality comes from the continuous innovation and huge human and material resources investment of the enterprise. If a country lacks a system to protect intellectual property rights, enterprises will not dare to take risks and innovate. They can only produce short-term and fast-selling products to obtain short-term profits, or simply help foreign brands to do OEM work and give up most of the profits. There is a great enterprise like Microsoft in the United States because there are perfect laws to protect intellectual property rights. Microsoft has gone to court with 30 states and the federal department of justice. In China, in the words of one of my university class teachers, "a police station can put it out". If the government can protect the intellectual property rights of enterprises, there will not be so many fake and shoddy goods in the market, and the dominant enterprises can expand the market, thus forming large-scale production like that in the United States, and finally benefiting consumers through price reduction. On a business trip to Suzhou last summer, I saw many local silk shops selling "hand embroidery". In fact, if you look closely, you will find that those handmade works are all furnishings, and what is really sold is made by machines. Everyone knows that it is made of machines, so it is difficult to sell it at a high price. You can buy one for a few dollars. When large-scale machinery products occupy the market, even if enterprises want to produce high-quality handmade products, how many consumers will believe it? At the end of last year, I transited at Narita Airport in Tokyo, Japan, and found that the airport shop sold some Japanese hand-made embroidery, marked with the official certification of hand-made, and a handkerchief was about several hundred yuan. I was deeply moved by the contrast between hatchbacks. The difference of several hundred yuan is actually the cost of protecting intellectual property rights. If the government can't effectively protect the intellectual property rights of domestic products, not only will it be difficult for domestic products to become brand-name products, but they will also become wage earners of brand-name products in other countries. Especially at present, "shanzhai culture" is prevalent, and Chinese people are not ashamed of infringing intellectual property rights, but proud of it. They only care about short-term interests and will inevitably lose the long-term market. Yes, cultural factors, which is the fourth reason I want to talk about.

Fourth, consumer culture. China people are probably afraid of poverty, so once they have money, they must show off their wealth; Even if you have no money, you have to spend a lot of money to show off your wealth in order to appear rich. This is a deformed culture. It is said that many girls studying at school can eat instant noodles on an empty stomach for several months in order to buy a LV handbag. Low-level white-collar workers in many companies buy luxury goods, especially purses, when they get paid. Think about it, if an ordinary employee buys a Coach bag one day, her supervisor must throw away the previous Coach bag to buy a more expensive Gucci bag, and then the senior supervisor will buy a more expensive high-end handbag when he sees that the middle supervisor actually took her purse of the same style. This blind and single-standard comparison is the cultural background of China's disproportionate expansion in the low-income luxury market. Last year, due to the financial crisis, the global market of LV was shrinking, but the China market was exploding. After all, it is not surprising that so many people in China want to show off their wealth and so many people in China want to give gifts. Americans also like to compare with others, but they prefer to be different. If you have this thing, I have to have another thing. This culture of pursuing individuality put an end to the vulgar culture of "all people buy LV".

This article was published in The Economist Teahouse 20 10 No.4 (48 issues in total).