China’s Jewellery Market
11 October 2017
I. Market overview
As a result of the economic slowdown in China over recent years, the market demand for jewellery has declined. According to figures from the National Bureau of Statistics, in 2016 jewellery retail sales from businesses above a certain designated scale totalled RMB299.6 billion, roughly the same as in the previous year. It seems, however, that many investors switched their focus from gold jewellery to gold bars. In line with this, 2016 figures released by the China Gold Association show that gold consumption in China amounted to 975 tons, making the country the world’s leading gold consumer for the fourth year running.
At present, jewellery in the Chinese market can be divided into three main categories: Metal, precious stones and others.
Metal jewellery: Jewellery made from all kinds of metals, which can be further divided into:
Precious metal jewellery: Jewellery made from precious metals, such as gold, platinum and silver. Common examples are platinum jewellery, gold jewellery, silver jewellery and alloy (carat gold) jewellery.
Non-precious metal jewellery: By comparison with precious metal jewellery, jewellery made from non-precious metals offers better value for money. Commonly, this kind of jewellery is made from copper and aluminium.
Imitation precious metal jewellery: This refers to jewellery made from materials which bear a close resemblance to precious metals in terms of appearance. In fact, this kind of jewellery does not contain any precious metals, but it has achieved a large degree of popularity because it can offer certain advantages, notably colourfastness, cheaper prices and a high decorative value.
Thin film jewellery: This kind of jewellery is created using special techniques to bond a layer of precious metal firmly on the surface of another, cheaper material. Examples of this include gold-plated, gold-gilded and forged gold jewellery.
Precious stone jewellery: Precious stones are made into ornaments using a variety of processes, including grinding, carving, inlaying and stringing. Thanks to its aesthetic value and innate elegance, precious stone jewellery is becoming increasingly popular. Common precious stone types include diamonds, rubies, sapphires, crystal, jade, pearls, amber and topaz.
Others: Jewellery made from materials other than metals and precious stones. This would include materials such as clay, wood, string, leather and ivory.
Platinum jewellery: China is one of the world’s largest consumer markets for platinum jewellery. According to sources within the trade, in 2016 retail sales of platinum jewellery in China dropped by 3-20%. One significant factor in the dwindling demand for platinum is that consumers now prefer to buy gold.
Gold jewellery: In recent years, gold jewellery manufacturers have begun to move away from traditional, homogenous designs and, instead, have looked to match with other materials. As a result, more and more young people are beginning to favour this style. In parallel with the lacklustre overall consumer market, the consumption of gold jewellery has fallen. However, investment in physical gold remains brisk, with gold bar and gold coin consumption rising significantly, registering a total growth of almost 30%. In the long run, then, there is still definite potential for growth with regard to the consumption of gold jewellery within the Chinese market. This will be driven by a number of factors, including the continued increase in upscale consumption, higher numbers of marriages and births and the trend for buying gold as a hedge against inflation.
Diamond jewellery: According to the White Paper on China’s Cultural Consumption Market in 2016-2017 (Jewellery & Wrist Watch Section) Diamond Index Report, China’s market demand for diamonds is currently valued at around RMB62 billion a year. In addition, it is estimated that, over the next five years, demand will continue to grow at a rate of 5-10%. This growth in market demand can mainly be attributed to an increase in the number of middle-class consumers and high income-earners. Moreover, the huge demand stemming from the wedding market remains a major impetus in terms of propelling diamond sales growth forward. By way of comparison, at present only 20% of Chinese urbanites own diamond jewellery, whereas 70% of the population of the US own such items. In light of this, there is still considerable room for expansion in the mainland diamond market.
Luxury jewellery: According to Euromonitor, luxury jewellery sales totalled RMB13.2 billion in 2016, accounting for 2% of overall jewellery sales, an increase of 1%. Primarily, consumers were seen as buying either for weddings or as an investment. The majority of buyers were female, with sales of men’s luxury jewellery actually dropping by 3%, supposedly a consequence of the anti-corruption policy implemented by the Chinese government.
Made-to-order jewellery: According to a recent industry survey, bespoke diamond wedding rings are the leading choice for 75% of the post-80s and 90s generations living in the first- and second-tier Chinese cities, such as Beijing, Shanghai, Shenzhen and Chengdu. In recent years, the traditional sales model for finished jewellery products has failed to meet growing consumer demand for exclusivity and individuality. As a result, bespoke jewellery has been gaining traction, so much so that many companies have been introducing made-to-order services.
The wedding market: Of the total volume of consumer jewellery sales in China, it is estimated that more than 50% of are related to weddings. The less developed the city (such as second- or third-tier), the higher the share. In 2016, there were 11.328 million newly-wed couples in China. Over the next few years, it is expected that this trend will be maintained, with more than 10 million couples getting married every year. As jewellery items are seen as essential components of traditional Chinese weddings, the jewellery market is sure to benefit from this growth in matrimonial statistics.
Festival market: The level of jewellery sales on the mainland is very much influenced by festivals and anniversaries. Many people have a habit of buying jewellery as a gift to celebrate birthdays and festivals, especially the Lunar New Year and Valentine’s Day. Many shopping malls also organise promotional activities tied in to these festivals.
Men’s market: While the traditional women’s market is fiercely competitive, the male jewellery market is still in the early stage of its development. As well as traditional jewellery items, such as rings, the men’s market also includes such solely masculine items as tie clips, cufflinks and belt buckles. The interest of mainland male consumers in jewellery products stems mainly from their taste for diamonds. According to one industry report, among Chinese males in the 30-44 age group, 67% wish to own diamonds. Compared with the relentless growth in overall demand, though, the development of the mainland male jewellery market is relatively slow. To address this situation, companies could open up new markets by placing greater emphasis on boosting innovation with regard to product designs, product cultural connotations, product point-of-sale promotions and advertising.
Junior market: In accordance with Chinese traditions, people give longevity locks, bracelets and necklaces to children as goodwill tokens and as way of wishing them a healthy and happy life. In particular, the kinds of gold jewellery items that can be worn, but which also have an inflation-proof value, are the top choices among those parents who are skilled at managing finances. With the implementation of China’s ‘two-child policy’, demand in the junior market is expected to grow. Nevertheless, when compared with the adult jewellery sector, where new styles are launched on a regular basis, the children’s jewellery market offers fewer choices in terms of types and styles. It also receives less of a promotional push.
Senior market: By comparison with young people, the elderly give a higher priority to jewellery that is both inflation-proof and has a demonstrable sentimental value. According to sources within the industry, the elderly age group’s spending on jewellery is no longer restricted to four traditional items – gold rings, gold bracelets, gold earrings and gold necklaces – as they also have a growing preference for jade, ruby and sapphire jewellery.
In 2014, the HKTDC’s survey of jewellery preferences in 10 mainland cities, came to the following conclusions:
Respondents who make planned purchases make up 66% of the total, representing a significant 13% rise when compared with a similar survey in 2011. The average spending of the respondents during the year prior to the survey was RMB4,000.
When making a purchase, the main consideration was ‘to be trendy / to complement clothing’, while the main occasion for wearing jewellery was ‘when going to work’.
Overall, necklaces were the most popular jewellery item purchased by respondents in the 10 different cities and among different income groups. The next most popular items were rings and bracelets. Overall, 75% of respondents indicated they would give higher priority to necklaces in their purchases over the coming year.
As far as materials were concerned, the first choice for consumers was gold, followed by platinum and carat gold. The younger the consumer, the greater the interest in diamond jewellery.
The main channel through which the respondents obtained information on jewellery was from a shopping mall/department store, followed by recommendations from sales personnel. Compared with the survey conducted in 2011, there were increases in the percentages of respondents accessing jewellery information through both of these channels. Interestingly, in an era of information overload, respondents still preferred to receive information about jewellery through personal experience.
Overall, the image of Hong Kong brands on the Chinese mainland was seen as very positive. For mainland respondents, Hong Kong brands were considered to be creative, of a unique character and fashionable in style. According to 80% of respondents, Hong Kong jewellery brands belonged to the mid- to high-end segment, while 30% considered them as high-end. The average price premium they accorded Hong Kong brands was 47%.
China’s major jewellery imports in 2016:
HS Code Description 2016
7101 Pearls, natural or cultured, not strung, mounted or set, or temporarily strung for convenience of transport 32.4 -10.7 7102 Diamonds, whether or not worked, but not mounted or set 7,764.7 4.1 71023100 Diamonds, non-industrial, unworked or simply sawn, cleaved or bruted 665.5 -12.8 71023900 Diamonds, other non-industrial 7,095.8 6.0 7103 Precious stones (other than diamonds) and semi-precious stones, not strung, mounted or set; ungraded, temporarily strung for convenience of transport 2,752.9 -37.2 7105 Dust and powder of natural or synthetic precious or semi-precious stones 18.6 -22.0 7106 Silver (including silver plated with gold or platinum), unwrought or in semi-manufactured forms, or in powder form 810.8 4.8 7107 Base metals clad with silver 13.3 -0.1 7110 Platinum, unwrought or in semi-manufactured forms, or in powder form 2,654.5 -20.5 71101100 Platinum, unwrought or in powder form 1,448.0 -26.7 71103100 Rhodium, unwrought or in powder form 108.4 -38.6 7111 Base metals, silver or gold, clad with platinum 21.5 151.6 7113 Articles of jewellery and parts thereof, or precious metal or of metal clad with precious metal 1,048.4 14.5 7114 Articles of goldsmiths’ or silversmiths’ wares and parts thereof, or precious metal or of metal clad with precious metal 6.8 -52.0
Source: Global Trade Atlas
II. Market Competition
The majority of jewellery processing enterprises on the Chinese mainland are located in Guangdong, Shandong, Shanghai, Fujian or Zhejiang. Overall, Guangdong is the primary location for jewellery production for the whole country, while Shenzhen and Panyu are the leading centres for jewellery processing. In the case of Shenzhen, it has been dubbed the ‘City of Jewellery’ as its jewellery businesses hold the largest share of the domestic market, largely through setting up sales counters and specialty stores across China.
Even though China has the craftsmanship required by many top international brands, the industry has yet to catch up in terms of branding and product design.
The huge potential of China’s consumer market has seen numerous international jewellery giants keen to stake their claim in the sector. To this end, many of the world’s leading jewellery brands have already entered the mainland market, including De Beers, the world’s largest dealer of diamonds, Cartier, the celebrated French watch giant, and Perles De Tahiti. A number of Hong Kong brands, most notably Chow Tai Fook and TSL, have also followed suit. The arrival of so many foreign brands has inevitability seen them competing for market share with the local brands. The mainland jewellery market is currently dominated by brands such as Chow Tai Fook, Chow Sang Sang, Luk Fook, Laofengxiang, Laomiao, Mingr, TSL and Chow Tai Seng.
Overall, jewellery brands are developing at a rapid pace, while stepping up their expansion into China’s second- and third-tier cities. Over the next few years, many of these brands will see the help of franchisees to complete their moves into the second-, third- and fourth-tier cities. Given their superior local resources, many of these franchisees will be well equipped to access the sales channels in these new territories.
III. Sales Channels
Mainland jewellery retail and wholesale channels can be divided into the following categories: jewellery counters at shopping malls, chain stores, supermarkets, specialty stores and specialised markets. The 2014 HKTDC survey indicated that Chinese consumers mainly shop for jewellery on weekends and public holidays, typically making their purchases at the jewellery counters of department stores. The percentage of consumers making their purchases at independent shops and chain stores, however, is now on the increase.
In recent years, more and more large-scale jewellery enterprises have been exploring the possibilities offered by chain operations and specialty stores. This has led to fierce competition with shopping mall jewellery counters. According to media reports, Luk Fook now has more than 1,400 retail stores, while Chow Tai Fook has in excess of 2,000.
Over the past few years, China’s jewellery brands have moved more and more into e-commerce. The success of its ‘website + experience store’ concept, for instance, has seen zbird.com expand swiftly on the mainland. In the case of both Chow Tai Fook and Chow Sang Sang, they sell online via Tmall.com, while Chow Tai Fook runs its own B2C shop. Despite the recent explosive growth of e-commerce across China, the fact that the online sale of jewellery currently accounts for just 5% of the industry’s total demonstrates that the market is still very much dominated by the traditional brand-name jewellery stores.
For many, the mainland’s trade fairs offer the most effective means of getting an overview of the jewellery sector in China and beyond, while also being the best places to meet dealers. Among the jewellery fairs scheduled to be held on the mainland in the second half of 2017 and the first half of 2018 are the following:
Date Exhibition Venue 17-20 November 2017 China International Gold, Jewellery & Gem Fair Shanghai World Expo Exhibition and Convention Center 9-13 November 2017 China International Jewellery Fair China International Exhibition Center, Beijing August 2018 Chengdu International Jewellery Fair (Autumn Edition) Century City New International Convention & Exhibition Center, Chengdu August 2018 Beijing Jewellery & Gem (Autumn) Fair National Agriculture Exhibition Center (Chaoyang District, Beijing)
IV. Import and Trade Regulations
2017 import tariffs of jewellery items:
HS Code Description % 7101 Pearls, natural or cultured, whether or not worked or graded but not strung, mounted or set; pearls, natural or cultured, temporarily strung for convenience of transport 0, 21 7102 Diamonds, whether or not worked, but not mounted or set 0-8 7103 Precious stones (other than diamonds) and semi-precious stones, whether or not worked or graded but not strung, mounted or set; ungraded precious stones (other than diamonds) and semi-precious stones, temporarily strung for convenience of transport 3, 8 7105 Dust and powder of natural or synthetic precious or semi-precious stones 0 7106 Silver (including silver plated with gold or platinum), unwrought or in semi-manufactured forms, or in powder form 0 7107 Base metals clad with silver 10.5 7108 Gold (including gold plated with platinum) unwrought or in semi-manufactured forms, or in powder form 0 7109 Base metals or silver, clad with gold 10.5 7110 Platinum, unwrought or in semi-manufactured forms, or in powder form 0, 3 7111 Base metals, silver or gold, clad with platinum 3 7112 Waste and scrap of precious metal or of metal clad with precious metal; other waste and scrap containing precious metal or precious metal compounds, of a kind used principally for the recovery of precious metal 0-8 7113 Articles of jewellery and parts thereof, or precious metal or of metal clad with precious metal 20, 35 7114 Articles of goldsmiths’ or silversmiths’ wares and parts thereof, or precious metal or of metal clad with precious metal 35 7115 Other articles of precious metal or of metal clad with precious metal 0-35 7116 Articles of natural or cultured pearls, precious or semi-precious stones (natural, synthetic or reconstructed) 35
Source: Customs Import and Export Tariff of the People’s Republic of China 2017
A consumption tax of 5-10% is levied on all jewellery sold in China.
The Shanghai Diamond Exchange is China’s only legal channel for the import and export of diamonds for general trading, as well as for the domestic sale of rough diamonds transferred-out in the course of the processing trade. For details of its import and export policies, customs supervision policies, tax policies and foreign exchange management policies, please refer to www.cnsde.com.
The Shanghai Gold Exchange began operation on 30 October 2002, with its launch seen as a sign that China’s gold sector is moving towards complete marketisation. For details of its business code of conduct and other relevant laws and regulations, please refer to www.sge.com.cn.
In May 2003, the mainland abolished the licensing system for running businesses trading in gold or silver products. As a result, the production, processing, wholesale and retail of jewellery are all now fully deregulated, meaning that any individual can now register to operate a business in the jewellery production, processing or wholesaling sectors.
On 1 December 2004, Guangdong launched a pilot scheme aimed at de-linking gold prices from workmanship fees within Guangzhou’s jewellery retail market. As of 1 September 2006, the practice was extended throughout Guangdong. As stipulated in the Interim Measures for the Separate Marking of Retail Price and Workmanship Fee for Gold Jewellery Items in Guangdong’s Jewellery Market, the prices of gold jewellery items in the Guangdong market are now displayed in the form of ‘material price + workmanship fee’, in contrast to the traditional method of pricing on a ‘per gram’ basis. Currently, the practice of de-linking gold prices from workmanship fees has also been adopted in a number of other cities, including Shanghai and Chengdu. Conversely, in the Fujian province, with the recent adoption of a new set of gold jewellery pricing rules by the Gemmological Association of Fujian, the practice of price and fee decoupling has been reversed since 1 May 2015. In other words, within Fujian the material costs and workmanship fees for gold jewellery items are now no longer marked separately.
The QB/T 2062-2006 Precious Metal Adornment and QB/T 1689-2006 Terms of Precious Metal Adornment have been in force since 1 December 2006. The former stipulates the classification, requirements, test methods, inspection regulations as well as the labelling, packaging, transportation and storage requirements for adornments made from precious metals. The latter, meanwhile, seeks to standardise the terminology and definitions used with regard to precious metal adornments, materials and craftsmanship.
The GB 11887-2012 Jewellery - Fineness of Precious Metal Alloys and Designation has been in force since 1 May 2013 and replaced GB 11887-2008 Jewellery - Fineness of Precious Metal Alloys and Designation. The new standard has removed specific provisions relating to hazardous elements and the testing of hazardous elements, while incorporating a number of additional relevant standards issued subsequently.
The GB/T 18781-2008 Cultured Pearl Grading, which supersedes GB/T 18781-2002 Cultured Pearl Grading, has been effective since 1 May 2009. This standard specifies text descriptions for quality factors and grades of cultured pearls. In terms of the overall standard, requirements are laid down for the six freshwater cultured pearl quality factors of colour, size, shape, lustre, smoothness and the thickness of pearl layers (in the case of nucleated pearls).
The national standard GB/T 23885-2009 Jade Grading drawn up by the National Gems & Jewellery Technology Administrative Centre of the Ministry of Land and Resources has been in effect since 1 March 2010. This standard provides clear definitions and classification rules for ground and polished natural jade, both inlaid and non-inlaid. The GB/T 29155-2012 Transparent (Colourless) Jade Grading, which has been effective since 1 October 2013, is similarly applicable to transparent colourless jade.
The national standard GB/T 25071-2010 Classification and Codes for Products of Gems and Precious Metals was implemented on 1 December 2010. As an important basic standard for the informatisation of China’s jewellery industry, it provides the basis for the management, transmission, retrieval and dissemination of data with regard to gem and precious metals products
As of February 2011, updated versions of the three national standards on jewellery – GB/T 16552-2010 Gems: Nomenclature; GB/T 16553-2010 Gems: Testing; and GB/T 16554-2010 Diamond Grading, became effective simultaneously, superseding the earlier 2003 versions.