The China Price: Same Ingredients, Different Outcomes. Why?
A longtime reader has done our homework for us. He explains exactly why, how, and by how much China's cost of living is so far below ours.
Several readers have asked me to find out how stuff in China costs 1/3 to 1/5 of US and European price, so I asked Frans Vandenbosch 方腾波, who has shopped in China and the EU for 25 years. Here’s his answer:
The real reasons why goods cost less in China
China uses the same kind of flour to make bread and noodles, uses the same type of crude oil to power its economy. Why then is the cost of bread and pastries less than half of the cost in Europe? And how is it possible that the cost of diesel in China is 1/3 of that in Europe?
Walk into any European supermarket and the price tags tell a striking story. Nearly everything cost double or more than the cost in China.
A litre diesel fuel costs 2.10 € in Brussels but only 7.26 Yuan (0.88 €) in Nanjing. This pattern repeats across countless everyday products. When in Europe, I’m using my China Mobile SIM card, also for data. Even with roaming costs, it is still cheaper than any European SIM card. In How China and the West manage pharmaceuticals differently I explained why medicines are on average 20 times more expensive than in Europe There are more than a dozen reasons why China can produce at a much lower cost than Europe.
The era of cheap Chinese labour is long forgotten
Western companies once relocated to China for low wages. That time has long passed. Today, the average net spendable income of Chinese workers often exceeds that of their European counterparts. The median monthly take-home pay in China is close to the EU average. After adjusting for purchasing power and lower prices, Chinese workers now keep more of what they earn.
Rising purchasing power leads to a large, sustained increase in sales volume, businesses achieve economies of scale (spreading fixed costs over more units and negotiating better prices from suppliers). This could reduce average production costs in the long run, even if demand-driven cost pressures appear in the short run.
This shift matters enormously for understanding prices. Chinese workers are no longer cheap in absolute terms. They are productive. Productivity gains have far outpaced those of European companies. Gross wage growth has slowed even as efficiency has accelerated. A BYD vehicle requires 77 % less labour cost than an equivalent German model. This is not exploitation. It is automation, skill, and scale working together.
Long-term vision shapes industrial culture
China’s cost advantage stems from strategic planning embedded in its political system. The 15th Five-Year Plan (2026-2030) provides a systematic blueprint for accelerating new industrialisation and developing strategic emerging industries. This continuity of vision spans decades, not electoral cycles. Industrial policy has been inextricably embedded in China’s economic planning since the “Made in China 2025” initiative launched in 2015. European businesses operate with quarterly reporting pressures. Chinese manufacturers plan with generational time-frames.
Structural efficiencies driving cost advantage
China’s manufacturing strength comes from complete industrial ecosystems. Districts like Suzhou allow suppliers to access specialised partners and suppliers within a 50-kilometre radius. This proximity eliminates warehousing needs and slashes logistics costs. European industrial districts once operated this way but have steadily hollowed out over decades.
