A tea mug a US resident finds in IKEA or other stores for at least a dollar is on sale in Yiwu for 5 cents. A sledge hammer is going for $1.40, an ax for chopping wood for $1.20…

Almost every product is on sale for about one-half, one-third, or one-tenth of the lowest price available in the cheapest discount stores of Europe and America.

What’s more, the quality of these items seemed in no way inferior to the products on sale in store around the world. In many cases, in fact, they are the same goods.

Why Yiwu market can keep such low prices?

#1 A Huge, Cheap Supplier Base

Yiwu with its neighborhoods forms the largest private/family owned factory base in China. After 20 years of running their machines day and night, they already fished off many factories in Europe and America.

Now they are the most efficient manufactures in the world for socks, buttons, zippers, straws, plush toys, jewelry accessories, hardware and tools… What’s more, they’re not only the largest, but also the cheapest.

Let’s see have a look at Mr. Jinwu’s factory:

Mr. Jinwu’s house, a 4 store building of around 800 m2 with a yard, was built 7 years ago. Now the first floor is his warehouse and workshops, the second floor part as his office and part as workshops, the third floor is where his family live, and the fourth floor is dorms for his workers.

They produce sun caps according to orders. When there are no orders, these workers doing other part-time jobs.

Mr. Jinwu pays electricity and water at residential rate, instead of industrial rate. That’s to say, he pays 50%-40% less on electricity and water every month than other factories located in industry zones. Plus zero house rental, zero insurance and medical care cost for his workers…

You can imagine how competitive his price is! There are tens of thousands of factories like this in and around Yiwu. How could anyone else beat them on prices?

# 2 Scale Effect

As so many factories get together, including many big ones, the scale effect shows its power.

Logistics cost, marketing cost reduced. Parts, accessories, materials, even production lines prices all reduced significantly.

The more factories arise, the lower prices there will be.

# 3 Big Battleground

As Yiwu market became the world largest wholesale market for daily using items, more and more factories, not only factories from nearby areas, but also factories from all over China, are putting their products on this market, to fight for a bigger share.

These ruthless competitions ended up with a 2-3% profit margin for many products.

# 4 Strong Government Support

While all China looked free market as an evil character of capitalism, Yiwu already opened its free market in 1982, which is one of the earliest free markets in whole China.

In the last 30 years, Yiwu government put almost all their money and energy to build markets. Then rent shops to venders at very low rentals. Private companies are not allowed to get into market building business. All markets in Yiwu are built by government and run by a government appointed company.

In this way, Yiwu attracts more and more vendors from all over China by its low shop rentals. As a result, factories from cities like Wenzhou, Ningbo, Shantou, even Guangzhou, where tons and tons of products were produced each day for exporting, came to Yiwu market in flocks to sell their products.

Yiwu market offers most-favored-vendor treatment to factory outlet centers. In recent years, they put more efforts bringing in more national top brands and global brands, all in the most favored treatment, to improve products quality level.

With these strong backup from government, Yiwu market kept prices at an extremely low level for three decades in the past. And there shows no signals that this situation will change soon.

# 5 “One-Cent-Profit” Making Money

Businessmen of Yiwu and its nearby areas are famous for hard-working and agility. They’re keen on every “one-cent-profit” businesses opportunity .

For example, the profit of one sewing needle is just about 1/10 cent RMB, the profit of one straw is just 1 cent RBM. But if you can sell containers of them in one month, you can still earn a descent profit.

As long as there is a profit, no matter big or small. These so called “ants businessmen” would desperately go for it. This is probably one of the most important reasons why Yiwu market has such cheap prices.

via Why Yiwu Market Cheap?.