"Because my labor is cheap, I can only consume cheap things from others, which is destined to be a vicious cycle." This sentence went viral recently, indicating that people will eventually seek the reasons behind their difficult lives. And "cheap" is the most everyday feeling.
A product is cheaper by one yuan, and the general economic explanation is: this is a victory of competition. Consumers pay one yuan less, the enterprise completes a transaction, and this one yuan seems to have disappeared from the world.
But that one yuan doesn't cease to exist just because it was never collected. It may be genuinely absorbed by better technology, greater scale, and more efficient logistics—in which case no one truly bears it. It may mean the company itself earns one yuan less. It may be temporarily absorbed by subsidies, credit, or investors. Or it may travel along the transaction chain, settling into suppliers' thin margins, employees' bonuses, family caregiving, and retirement accounts decades down the line.
So the real question worth asking is not "why are things so cheap," but rather: who ultimately pays for the one yuan that was not paid.
This line of questioning transforms the concept of "low wages - low prices - low demand" from a circular argument without a starting point into a directional issue. Being "cheap" in itself does not equate to exploitation, nor does it automatically lead to insufficient demand. The key lies in the methods companies use to achieve price reductions and who has the capability to pass on this cost to others.
In the past, discussions about China's cheap labor have often focused on exports: low wages reduce factory costs, and goods are sold to higher-income households overseas; Chinese workers' insufficient purchasing power will not immediately become the ceiling for corporate sales - because demand can come from abroad. However, industries such as catering, domestic work, maintenance, care, retail, and local transportation cannot be exported. As these industries take on more and more employment, the same arrangement takes on a different nature: low wages are a price advantage in the export sector, but a demand ceiling in the domestic demand sector.
Our discussion starts with this cheap one yuan.
Low-cost sources come from five areas: 1. Labor costs: Huawei's labor costs are relatively low due to its location in Shenzhen, where labor costs are lower compared to other major cities in China. 2. Economies of scale: Huawei achieves economies of scale through large-scale production, enabling the company to negotiate lower prices with suppliers and reduce costs per unit. 3. Supply chain optimization: Huawei optimizes its supply chain by working closely with suppliers, streamlining logistics, and reducing waste, resulting in lower procurement costs. 4. Research and development efficiency: Huawei's research and development process is highly efficient, allowing the company to develop new products quickly and at a lower cost. 5. Government support: Huawei receives support from the Chinese government, including tax incentives, subsidies, and other forms of assistance, which helps to reduce its costs.
Low prices can be categorized into five types based on their sources, even if they appear to be the same in terms of price, their economic implications are entirely different.
The first is "efficiency-based low prices." Automation, scale, logistics, standardization, component commonality, and dense supply chains all lower unit costs. This is real productivity progress: society achieves the same outcome with fewer resources. This yuan doesn't require anyone to bear the burden, it's newly added.
The second is the "enterprise concession-based low price". Businesses reduce their gross margin to promote sales, clear inventory, or seize market share, with the cost borne by shareholders and operators in the current period.
The third is the "balance sheet-type low price". Banks provide credit at overly low costs, local governments offer land, energy or tax incentives, and some companies accept very low returns. Suppliers provide implicit financing with long account periods. Prices are lowered today, but this cost has not disappeared and is not truly borne by anyone - it is simply recorded for later. Banks agree to wait another year, local governments hope the factories do not shut down, and the delayed payments become interest-free loans, while shareholders' accounts are temporarily propped up.
The fourth is the "value chain transfer type of low price". The platform, brand, large sales or large procurement party maintains its own revenue, but requires merchants to bear the cost of promotions, asks suppliers to lower prices, extend payment terms, accept returns, and absorb inventory and compliance costs on their own. This cost is not being absorbed, but rather is being prepaid by the party with weaker bargaining power.
The fifth is the "labor and social cost outsourcing type of low price". Unpaid overtime, work-related injuries and safety guarantees are borne by the workers' own families; uncovered social security, medical care, training, childcare and pension costs are borne by the unpaid caregivers, mostly women, and the future public finances. Companies and society only pay the cost of an employee showing up to work today, but do not pay the full cost for their life tomorrow, in their old age, or even for the next generation.
These five low-cost methods can be further divided into three paths: the first is true digestion, where no one has to pay for the cheap one yuan; "value chain transfer" and "labor and social cost outsourcing" belong to sharing, where the one yuan is passed on to the supplier's thin profits, workers' working hours, and suppressed wages; as for "balance sheet type" and the pension and health care part of laborers in "labor and social cost outsourcing", it is pushed back, letting future selves, others, or the treasury bear the cost.
Of course, there is also the scenario where the company itself absorbs that one yuan. In an already fiercely competitive industry, the margin for this is very thin, and it usually cannot hold for long before quickly shifting to the third or fourth scenario.
These three transferred paths are the foundation of all low prices. In the face of any downgrade, we can ask an additional question: which path is it taking?
The various stages of low prices: taking new energy vehicles as an example
We can also look at this from the perspective of a specific industry. In recent years, new energy vehicles have been a typical industry with a low-price advantage, so how can its low-price path be divided and understood?
Part of this is about efficiency. Batteries have become cheaper, production lines have become faster, and components have become more universal. This part is not something that someone is paying for, it is a new development. It's crucial to acknowledge this: the progress made by Chinese manufacturing in recent years is real, and attributing all the cost savings to exploitation is not only inaccurate, but also mistakenly puts "improving efficiency" and "improving distribution" at odds with each other.
Part of this is due to the upstream transfer of the value chain. Automakers require component suppliers to lower prices, with payment terms extended from three months to six months, and the risks of inventory and returns pushed upstream. The supplier's money is still on the way, but the car price has already been reduced, with the upstream sector bearing the costs first.
Part of this is the outsourcing of labor and social costs, made possible by the excess working hours. Overtime during peak order periods, temporary workers during busy seasons, jobs shifted from formal contracts to subcontracting and outsourcing, and social insurance that is not fully paid - all of these costs are initially borne by the workers themselves.
There is another aspect that has not been taken into account. This is the easiest to overlook, but also the most necessary to clarify: why can factories that are clearly operating at a loss continue to produce?
The answer lies in the fact that the funds supporting it have been suppressed in price, and the source of this cheap funding is actually depositors. In 2026, the one-year time deposit rate for the six major state-owned banks was 0.95%, and the three-year rate was 1.25%, with a demand deposit rate of 0.05%. During the same period, the July CPI rose 0.5% year-over-year, and the core CPI rose 0.9%. With household deposits exceeding 17 trillion yuan, the actual return after deducting inflation is close to zero.
The money sits in the bank, becoming a low-cost liability for the bank. In economics, there's a term to describe this phenomenon, called financial repression: suppressing deposit interest rates and transferring the returns that depositors should have received to borrowers. This is a systemic arrangement that allows the entire credit system, including state-owned enterprises, local financing platforms, and capital-intensive industries, to access funds at below market risk pricing. The factory is able to stay afloat without acknowledging losses thanks to the space created by this system. However, the money flows from the depositor's passbook to the factory's account through the bank's risk pricing and fund allocation, making it more like a broad environment of suppressed funding, and it's difficult to draw a precise line.
So the same household enjoys a discount when buying a car on one hand, while on the other hand quietly subsidizing part of that discount through its savings. This money doesn't come out of wages; it's paid through the opportunity cost of forgone interest. And the subsidy doesn't necessarily land precisely on that one factory—it first flows into a larger pool, then gets redistributed from there.
Cheap capital is just one of the conditions that allows losses to be sustained. "Everyone is willing to sustain" is the second layer of the answer, and these two layers are intertwined, making it difficult to completely separate them.
Local authorities do not want the factory to shut down, as it contributes to employment, tax revenue, and a whole local supply chain. The most common way for local authorities to protect the factory is to push local banks to continue lending, still using the previously suppressed funding system. In addition, some companies have lower return requirements than the market, which can lower prices to a level that others cannot match. Some car companies rely on equity financing and extended supplier payment terms to maintain cash flow, rather than just bank loans. As long as the money from sales can cover electricity bills and wages, stopping production would be even more loss-making, so competitors also follow suit with loss-making sales. These forces intertwined, allowing loss-making factories to continue production, and this year's losses do not have to be recognized this year.
Banks are continuing to provide loans, local governments are preserving enterprises, and companies are persevering, with each party doing what seems "reasonable" in their own position.
However, in the long run, it is impossible for companies to continue subsidizing consumers with shareholders' and creditors' money. When funds are no longer so cheap, payment terms cannot be extended, and local finances can no longer provide subsidies, the losses that have not been accounted for will have to be borne by someone.
In many industries, once "balance sheet-based low prices" persist, they almost inevitably lead to "value chain transfer" and "outsourcing of labor and social costs".
Large platform companies and industry leaders occupy the upper layers of the value chain. Platforms like Taobao, Pinduoduo, and Meituan control sorting, commission rates, traffic pricing, and promotional rules, and the scale of the Chinese market gives them contractual capabilities that far exceed those of individual merchants. If consumer prices decrease while platforms simultaneously lower their commission rates and brands actively bear promotional costs, merchants' gross margins will not immediately deteriorate, and the transfer of this one yuan will mainly come from the concessions made by platforms and brands, or from efficiency improvements. However, if the platform is strong enough, this one yuan will be passed on to merchants and suppliers; suppliers will then pass it on to workers, resulting in lower piecework wages, longer working hours, less social security, and less investment in safety.
Numerous small and medium-sized enterprises play a dual role in this pipeline. They are squeezed by platforms, landlords, brands, and large clients into thin profit margins, while still having the ability to pass on part of the pressure to laborers and lower-tier suppliers. Recognizing that they are under pressure does not mean denying that they can continue to shift the burden.
The most critical property of this chain is that it can bypass the step of profit concessions and go straight to outsourcing. Profit concessions presuppose that a company still has profits to give up; in industries where margins have already been squeezed to near zero, value chain shifting connects directly to labor cost outsourcing, with no buffer in between.
And it is able to sustain itself in the long term by relying on the same old temporal sleight of hand. The social security that workers are shortchanged on is made up for by families when they fall ill; the childcare costs that are not paid for are borne by grandparents and female caregivers; the insufficient pensions are left for the finances and future generations to make up for 20 or 30 years later. Consumers enjoy convenience today, companies preserve their orders today, and the government preserves employment today. The bill is split into many small portions, scattered into other people's nights, families, and futures.
A person's life is not just about paying bills at the checkout counter, but also about facing housing, medical, education, childcare, unemployment, and retirement expenses. These major risks will not disappear just because a meal is a few dollars cheaper. When public security is weak and rights are difficult to transfer across regions, families must retain more cash and are less likely to refuse a low-paying job that offers immediate payment.
As a result, families began to rely on high savings and kinship networks to make up for the public risks that the government failed to cover. The cost, however, is that it becomes more difficult for individuals to live in big cities, switch jobs, invest in their future, or take risks. Urban life thus presents a paradox: daily conveniences are cheap, but a complete life remains expensive.
Low-wage workers are also low-price consumers. A person delivers food for a platform during the day and buys cheap goods from another platform at night, using their own low pay to subsidize others' convenience, while also relying on another group of low-wage workers to maintain their own life. This is not a vertical redistribution from the country or high-profit sectors to residents, but a horizontal cross-subsidy among low-income laborers.
Moreover, this subsidy actually works against the poor. Low-income earners derive relative welfare from inexpensive goods, but high-income households typically purchase more housekeeping, food delivery, caregiving, and other labor-intensive services, gaining a disproportionately larger convenience benefit. Low prices serve both as a painkiller for those at the bottom and as a structural condition that lets middle- and upper-income families enjoy cheap labor. From a subsidy perspective, higher-income earners actually receive more of the subsidy provided by low-income workers.
Some might argue that the money saved has a higher marginal utility for the poor, and that's a valid point. However, this utility cannot offset the large risks associated with healthcare, education, and retirement, and it can only make life slightly better today without buying security for tomorrow. This sense of security is precisely something that high-income earners already possess and don't need to exchange for by saving money.
From this perspective, life is more expensive for low-income individuals than for high-income individuals.
The reason why the service industry is relatively low-cost is
After understanding the five sources of low prices, we will also reunderstand why China's service industry is relatively cheap. It is not the so-called "quality issue", but rather a process of elimination.
The service industry cannot be exported and lacks overseas demand to fall back on. It is not eligible for the same subsidies as manufacturing, such as land, electricity prices, and industry funds, and the low-cost model based on balance sheets is largely ineffective for it. The hourly output of services like haircuts, food delivery, care, and maintenance is difficult to increase exponentially like chip manufacturing, and there is limited room for efficiency improvements. The profit margin of a small shop is already close to zero, making it impossible to discuss low prices that sacrifice profits.
Of the five doors, four have been closed, leaving only human resources, working hours, and social security.
Ultimately, as mentioned in the previous chapter, society itself has become dependent on cheap services. People support delivery riders getting better protection, but oppose increases in delivery fees; they support caregivers getting raises, but cannot afford the resulting higher costs for elderly care and childcare. The low-wage system is thus maintained not only by companies, but also has a real consumer veto point.
The concept of "cheap circulation" originated from this.
Where has the benefit of "efficiency-oriented low prices" gone?
There's also an interesting question: does the first type of low price, which is efficiency-driven, actually benefit workers with its profits?
In 2025, the average annual salary for professional and technical personnel at large-scale enterprises was 155,491 yuan, while production and manufacturing personnel earned 80,739 yuan, and all employed personnel earned 106,080 yuan. The former saw a 5.0% increase that year, the latter a 2.8% increase, with an overall average increase of 3.5%. Industrial upgrading has raised the returns on a few skills, but has not led to a wage surge that covers a large number of production workers.
But what truly allows the "shortage of skilled workers" to coexist with low wages for an extended period is not the statistical discrepancy, but rather how companies define "labor shortages." When companies say they are short of workers, they usually mean that they cannot find people who can immediately get to work under the current wages, working hours, location, and management conditions, rather than a physical lack of laborers. They can also resort to overtime, outsourcing, automation, or lowering training standards, without necessarily raising basic wages. What is truly lacking is a career ladder for skilled workers that allows them to accumulate skills and take them to other companies, so that their skills are not reduced to zero when they leave a company. The rapid expansion of vocational education has not solved this issue: an increase in vocational school graduates does not equate to the establishment of a universally recognized skill formation system.
When skills are locked into a single company and a single experience, they cannot become a bargaining asset that laborers can take with them.
The skills bottleneck explains why the underlying cannot rise. However, even for those high-paying positions that are truly rising rapidly, their benefits have not spilled over. The scale of these positions is too small - chip engineers, algorithm engineers, and financial professionals can have high salaries, but they cannot provide credible alternative jobs for hundreds of millions of workers in catering, retail, manufacturing, and flexible employment. New industries are also becoming increasingly capital-intensive - batteries, semiconductors, robots, and artificial intelligence equipment can create high output value, but each billion yuan of output value requires far fewer ordinary workers than textiles and assembly.
Some high salaries come from industry barriers to entry rather than universally replicable productivity: financial licenses, public resources, platform network effects, and government procurement can all support high salaries for core positions, and this type of income will not automatically raise the wages of small restaurants and component suppliers. Finally, high-paying core positions often rely on low-paying peripheral jobs - platforms pay algorithm engineers high salaries while outsourcing delivery and customer service; automotive leaders pay research and development personnel high salaries while requiring suppliers to lower prices and extend payment terms.
Leading enterprises are not necessarily the vanguard of wages, but may also be the starting point for externalizing costs.
Low prices have become the norm
Low prices represent an order that is neither unnoticed nor beneficial to all, yet it operates stably under the influence of all parties involved.
The first tier consists of rule-makers: platforms, brands, industry leaders, major buyers, and certain government agencies. They have the power to alter commission rates, payment terms, market access, credit conditions, and public service provisions—meaning they can freely choose among five distinct low-price strategies.
The second layer consists of pressure buffers: local governments, small businesses, contractors, and lower-tier suppliers. They absorb pressure from above and try to pass some of it further down, but their only remaining options are the fourth type, value chain pass-through, and the fifth, passing costs on to workers.
The third tier consists of the ultimate bearers of the burden: low-wage workers, family caregivers, those without full protection, and the future public finances. They have no choice. They become the endpoint, not because they bear the greatest responsibility, but because there should be a safety net behind them, namely the national welfare system, which is often absent in this order.
These three layers form a "low-price alliance": not everyone sits at the same table to reach an agreement, but rather a set of mutually compatible short-term interests. The central government wants exports and output; local governments want businesses to stay afloat and employment not to deteriorate; platforms and leading companies want market share and cash flow; small businesses want to survive until next month; consumers want their daily lives not to become more expensive; and workers may also prioritize the cash they can get today over their pension benefits 20 years later.
They don't need to cooperate, as long as each side opposes bearing the cost of reform itself, the original payment order can be maintained.
What's even harder to overcome is that stakeholders are looking at different ledgers. Suppliers care about payment terms, small businesses care about rent and commissions, workers care about working hours and take-home pay, families care about healthcare and unemployment, and local governments care about tax revenue. Short-term gains can form clear policy demands, but long-term costs are dispersed across different households, regions, and years, making it difficult to organize into a unified consensus for change.
A low-price order, built on hidden payment transfers: the meager wages workers receive become the cheap conveniences of urban life; the near-zero actual returns depositors get become the production capacity that should have exited but still remains; the medical, childcare, and elderly care costs that families silently bear become the costs that enterprises and local governments do not have to account for today.
Households thus paid the bill three times: as workers, as depositors, and as future taxpayers.
This is precisely where that online complaint hits the mark. Because my labor is cheap, I can only afford the cheapness of others; and that cheapness, in turn, rests on another person's labor being equally cheap. This is not a natural fate, but a self-sustaining equilibrium under the existing order of payment.
Breaking it means not asking ordinary people to buy less and buy cheap, but making labor skills, time, and security a mandatory part of the price—not a line item that can be cut.
A journey that's cheaper by one yuan, only ends here. It has never disappeared out of thin air, but has instead been passed down through power and time to someone who is the most difficult to refuse.