There are all kinds of factories in China. A few are truly world class (think of the joint ventures producing luxury cars, for example). Others are good enough for the core (and the low-end) of Western markets, in dozens of product categories. And the rest are adequate for the needs of developing countries (Africa, India…) and the domestic market.

But how low exactly is the quality of the products sold on the domestic market? I found a very interesting description in Managing the Dragon, by Jack Perkowski. According to him, quality can be quite low, as long as the goods are cheap enough:

Where do these Chinese competitors come from? New entrants sometimes seem to appear out of thin air, but they actually emerge from a purely local market—a market that’s beneath the radar of most foreign observers, and in most cases is much larger than Western competitors would ever expect.

The China market is actually two distinct markets. For virtually every product, there is a ‘foreign/local’ market, characterized by higher technology and higher price, and a second purely ‘local’ market, which is characterized by lower technology and lower price.

Due to vast income disparities, the total China market tolerates all levels of technology and quality. (Average incomes in cities like Beijing and Shanghai are $2,500 per year, while average incomes in the countryside, where 750 million people live, are approximately $500.) Any company, no matter how low its quality and level of technology, will find a market for its products in China—if its price is cheap enough.

The takeaway for importers is to be careful. They might buy from a middleman or a factory that sub-contracts to a small workshop that is used to dealing with the local market. Why? Simply because its price will be so low… And the intermediaries can make their margin. But the result might be unsellable goods!