Ask HN: Why is China subsidizing every step of manufacturing?

[dtquad]

Western hardware startups on X/Twitter have been posting about how they are doing CNC + anodizing + transport of parts from China for prices that are close to the material costs of the part. The only reason this is possible is because the Chinese state is subsidizing every value adding step of manufacturing.

What I don't understand is what does the Chinese state get out of subsidizing my orders on cheap-chinese-cnc.cn and cheap-chinese-pcb.cn and why are other countries not doing it?

[muzani]

China has not much left to invest in itself. Their infra is just insanely overbuilt - just search all the massive highways that head out to remote areas, all the solar plants covering deserted areas. They're investing heavily in other countries as well, but many places prefer to invest in themselves. Tech tends to have very high ROI. There's probably lower ROI things like agriculture that are fully invested into.

Subsidies are actually good for the economy. If you invest a few billions into electronics, that allows higher salaries for electronics engineers. The higher salaries mean that people will do electronics in university, and it pays back in a few years.

I feel like some countries avoid them for cultural reasons. Partly because it could be seen as a form of corruption - chicken farm XYZ pays $100m to support both parties during the election, and suddenly there are $10B in subsidies for chicken farms after the election regardless of who wins. Most countries have more than two parties, so this can also get expensive. China has only one.

Some places have the bubble problem - electronics salaries are too high, and further subsidization increases the salaries past sustainable values, which may also increase the cost and price of the products.

Some subsidies are more subtle, e.g. a lot of US tech is indirectly subsidized via military contracts, which also does the work of filtering corruption.

[christophilus]

My dad ran a similar analysis a decade ago and agrees that China is heavily subsidizing their production. As to why, we can only guess. My bet is China sees it as a way to become the global manufacturing monopoly and gut their adversaries’s ability to compete when it comes to wartime ramp up.

[meiraleal → christophilus]

It is the VC strategy applied to states

[ChumpGPT]

The Chinese Gov still owns part of the factories (they were once Nationalized). This gives these factories an advantage because profit is not as important as employing people and expanding their catalog of goods. These same companies get credits in the form of payments to sell and ship internationally (10%-15% of the Bill of Lading).

I have dealt with quite a few Chinese factories since 2000 and they have always been able to provide machine goods below the price of raw materials in the USA/Canada. One area their machine shops aren't so great at is screw machines, they prefer to use CNC's for almost everything. I do remember a time when what they made was absolute shit but they got better and better over time as they learned and perfected the process (at my expense..lol)

There is also the chance they already make what you buy for someone else so your business is additional. If your item is unique they will add it to their catalog to sell to others. They are also willing to work at a small loss or break even to gain your business because they are heavily supported by the Gov.

Other countries don't do this because most businesses are private, there are penalties against countries that subsidize industry, etc. For a long time, the US allowed Chinese companies to take advantage of American Manufacturers. They were granted "Most Favored Nation Status" because they promised to buy from the countries that honored it but that has changed over the years and didn't work out as planned.

These days costs for materials in North America and Europe are higher since the Governments don't own steel mills and work at cost. So manufacturers pay more and labor is another big part of it along with energy costs. Everything in China is subsidized to give their manufacturing sector an advantage. It has worked out well for them until now.

[s1artibartfast]

What market are you looking at for the material costs? Material costs in China are cheaper than US, similar to the labor and electricity.

[Spooky23]

China went from a nation where half of the country was eking out a 18th century existence to a modern economy in my lifetime.

They embrace capitalism, with a government leash to align with their strategic plan. The United States does something similar, but we align it specifically to defense and agriculture, and select areas of finance & real estate.

The US strategy was that China would be the donkeys doing the labor, and Americans would be the smart people doing the design. The problem is that China is developing the brains to do the heavy lifting in more and more areas, and we’re seeing civil unrest develop as we focus on productivity (ie more work, less people) for US jobs.

[meiraleal]

> why are other countries not doing it?

Because they are subsidizing the Ukraine war and the Israeli military