5 Aug 2016
China’s Jewellery Market
I. Market overview
Jewellery demand in China has sustained continuous growth in recent years. Then, in April 2013, a fall in gold prices touched off a wave of gold buying frenzy among people from all walks of life. According to National Bureau of Statistics figures, retail sales of jewellery for that month reached RMB30.3 billion, representing a year-on-year growth of 72.2%. In 2013, annual jewellery sales rose by 25.8% to RMB295.9 billion. As a result of the rapid growth in 2013, jewellery retail sales of enterprises above a designated scale in 2014 amounted to RMB297.3 billion, a level comparable to that in the previous year. In 2015, jewellery retail sales of enterprises above a designated scale saw a year-on-year growth of 7.3% to RMB306.9 billion.
At present, jewellery in the Chinese market can be divided into three categories: metal, precious stone 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 (karat gold) jewellery.
Non-precious metal jewellery: Compared with precious metal jewellery, jewellery made from non-precious metals is good value for money. Jewellery made from copper and aluminium is common.
Imitation precious metal jewellery: This refers to jewellery made from materials bearing close resemblance to precious metals in appearance. This kind of jewellery in fact does not contain any precious metals as materials, but it gains wide popularity because of its advantages of stable colour, cheap price and high decorative value.
Thin film jewellery: This kind of jewellery is made by bonding a layer of precious metal firmly on the surface of another material through specific techniques. Examples are gold plated, gold gilded and forged gold jewellery.
Precious stone jewellery: Precious stones are made into ornaments through the processes of grinding, carving, inlaying and stringing. Precious stone jewellery is becoming increasingly popular because of its aesthetic value and elegance. Common precious stones include diamond, ruby, sapphire, crystal, jade, pearl, amber and topaz.
Others: Jewellery made from materials other than metals and precious stones. These can include clay, wood, strings, leather, ivory, etc.
Platinum jewellery: China is one of the largest consumer markets for platinum. In 2014, a quarter of the world’s demand for platinum jewellery originated from China. The Platinum Guild International commissioned a third-party research institution to conduct a tracking survey on jewellery brand strength in 17 major Chinese cities in 2015. Of the women aged between 20 and 44 polled, 66% of the respondents indicated that platinum will be their first choice next time they purchase precious metal jewellery, up 6% from 2014.
Gold jewellery: In recent years, gold jewellery starts to make a breakthrough from its traditional homogenous designs and matches boldly with other materials. As a result, more and more young people fall in love with it. Figures from China Gold Association show that, in 2014, gold consumption in China reached 886 tons, which was down 24.7% year-on-year due to excessive consumption during the gold-buying frenzy in 2013 and other factors. In 2015, China’s consumption of gold was 985.90 tons, which was an increase of 3.66% from the same period in 2014. This signalled the end of the downward trend since September 2013 and was an indication that gold consumption in China was out of the doldrums. In the long run, driven by continued increase in upscale consumption, a marriage and childbearing peak, and the trend of buying gold as an inflation hedge, there is still a definite growth potential in China’s consumer market for gold jewellery.
Diamond jewellery: According to a report by De Beers, global diamond sales in 2014 amounted to US$81 billion, up 3%. Chinese consumers made the biggest contribution to this record with a 6% increase. Industry sources predict that, in future, second- and third-tier cities in the mainland will become the main impetus for growth. China's market share in global diamond trade increased from 3% 10 years earlier to 16% in 2014. The share of Chinese people's diamond consumption in total global sales is expected to increase to 20-25% in the next 10 years.
Made-to-order jewellery: According to a recent industry survey, 75% of the post-80s and 90s generations in China’s first- and second-tier cities such as Beijing, Shanghai, Shenzhen and Chengdu will choose bespoke diamond rings for their wedding. In recent years, as the traditional sales model for finished products of jewellery companies fails to meet the growing consumer demand for exclusivity and individuality, bespoke jewellery has been catching attention, so much so that many companies have introduced made-to-order service.
Wedding market: Out of the total consumption volume of jewellery in China, it is estimated that more than 50% of jewellery sales are driven by weddings. And the less developed a city is (such as second- or third-tier), the higher the share is. In 2015, China’s newly-wed couples numbered 12.25 million. In the next few years, the trend that more than 10 million couples will get married each year is expected to be maintained. Therefore, as an essential item in traditional Chinese wedding customs, jewellery will benefit from the growth in the number of people getting married.
Festival market: Jewellery sales in the mainland are quite sensitive to festivals and anniversaries. People have the habit of buying jewellery as gifts to celebrate birthdays and festivals such as the Lunar New Year and Valentine’s Day, while many shopping malls will also launch promotion activities tied to festivals.
The male market: While the traditional female market is a fiercely competitive one, the male jewellery market is just emerging. Other than traditional jewellery such as rings, the male market also includes items such as tie clips, cufflinks and belt buckles. The consumption interest of mainland male consumers in jewellery products stems mainly from their knowledge of diamonds. A De Beers report indicates that among Chinese males within the age group of 30-44, 67% of them wish to possess diamonds. But compared with the relentless growth in demand, the development of the mainland male jewellery market is relatively slow. To address this situation, enterprises could open up new markets by putting more efforts and innovation in product designs, product cultural connotation, product point-of-sale promotion and advertising.
Juniors market: According to Chinese traditions, people give longevity locks, bracelets and necklaces to children as goodwill for a healthy and happy life. In particular, gold jewellery items for wearing but also have inflation hedging value are top choices for parents adept at managing finances. With the fully fledged implementation of China’s “two-child policy”, demand in the juniors market is expected to grow. Nevertheless, compared with the adult jewellery sector where new styles are launched often, children’s jewellery offers fewer choices in terms of type and style and also receives less promotion efforts.
Seniors market: Compared with the young, elderly people give higher priority to jewellery that provides inflation hedging as well as sentimental values. Industry sources say that elderly spending on jewellery is no longer restricted to the four traditional items, namely gold ring, gold bracelet, gold earrings and gold necklace. They have a growing preference for jewellery made from ruby, sapphire and jade.
In 2014, the HKTDC commissioned a survey on jewellery consumption in 10 mainland cities. The findings indicated that:
Respondents who make planned purchase account for 66% of the total, representing a significant rise of 13 percentage points compared with the 2011 survey. The median spending of the respondents in their respective cities is Rmb4,000 in the past year.
When making a purchase, the main consideration is "to be trendy / to complement clothing", while the main occasion for wearing jewellery is "when going to work".
Necklace is the most popular jewellery item purchased by respondents in different cities and among different income groups. The next popular items are rings and bracelets. 75% of the respondents indicated they will give a higher priority to necklaces in their purchases in the coming year.
As far as material is concerned, consumers' first choice is gold, followed by platinum and karat gold. The younger the age, the greater the interest in diamond jewellery.
The main channel through which the respondents obtain information on jewellery is shopping malls/department stores, followed by recommendation of sales personnel. Compared with the survey conducted in 2011, there were increases in the percentages of respondents getting jewellery information from both of these channels. Paradoxically, at a time of information glut, the respondents tend to obtain information on jewellery through personal experiences.
The image of Hong Kong brands in the mainland has been very positive. To mainland respondents, Hong Kong brands are creative, of unique character and trendy styles. 80% of the respondents reckon Hong Kong jewellery brands belong to the mid- to high-end segment while 30% consider as high-end. The average price premium they give to Hong Kong brands is 47%.
II. Market Competition
Mainland jewellery processing enterprises are mainly located in Guangdong, Shandong, Shanghai, Fujian and Zhejiang. Guangdong tops jewellery production in the whole country with Shenzhen and Panyu as the main bases for jewellery processing. Shenzhen is dubbed the “City of Jewellery” as its jewellery enterprises take the largest share of the domestic market through setting up sales counters and specialty stores across the country.
Even though China has the craftsmanship to deliver the orders of 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 attracted numerous international jewellery giants to scramble for a share. Big names such as De Beers, the world’s largest dealer of diamonds; Cartier, the celebrated French giant in watches; Perles De Tahiti; as well as leading jewellery brands in Hong Kong such as Chow Tai Fook and TSL have all entered the mainland market successively. With the landing of foreign brands in the China market, competition between local brands and foreign brands, as well as rivalry among foreign brands themselves are likely to escalate. Leading brands in China’s jewellery market include Chow Tai Fook, Chow Sang Sang, Luk Fook, Laofengxiang, Laomiao, Mingr, TSL and Chow Tai Seng.
Jewellery brands are developing at a brisk pace and stepping up their expansion into second- and third-tier cities. This means that in the few years to come, jewellery brands will expand their markets in second-, third- and fourth-tier cities with the help of franchisees, some of whom have superior resources locally and are able to open up sales channels quickly.
In recent years, different business formats and different ways were adopted by various jewellery brands to present their brands and the exquisiteness of jewellery. In addition to compiling albums, shooting commercials, participating in exhibitions, hosting product launch conferences and running connoisseur events, the use of micro film is gaining popularity with the jewellery industry. Examples include the ones produced by Chow Tai Seng and Swarovski.
III. Sales Channels
Mainland retail and wholesale channels for jewellery can be divided into the following categories: jewellery counters at shopping malls, chain stores, supermarkets, specialty stores and specialised markets. The survey conducted by the HKTDC in 2014 indicated that Chinese consumers mainly go shopping for jewellery on weekends and public holidays and mostly make purchases at the jewellery counters of department stores. However, the percentage of those making purchases at independent shops and chain stores is on the rise.
In recent years, more and more large-scale jewellery enterprises are turning to the format of chain operations and specialty stores. This has led to fierce competition among shopping mall jewellery counters. For instance, Luk Fook currently has more than 1,300 retail stores and Chow Tai Fook more than 2,000 sales outlets across the mainland respectively.
In recent years, China’s jewellery brands have made bold strides in their development via e-commerce platforms. With the “website + experience store” concept it created, zbird.com is expanding quickly in the mainland. Chow Tai Fook and Chow Sang Sang are also selling online via Tmall.com, with Chow Tai Fook running its own B2C shop as well. Despite the explosive growth of e-commerce in China over recent years, the fact that currently online sales of jewellery account for 5% of the industry total demonstrates that the market is still dominated by the traditional brand-name jewellery stores.
Fairs held in the mainland provide the best channel for enterprises to gather the latest jewellery information in China and beyond. They are also the best places to meet dealers. Selected jewellery fairs to be held in the mainland in the second half of 2016 and the first half of 2017 are as follows:
IV. Import and Trade Regulations
- The import tariffs of jewellery items in 2016:
A consumption tax of 5-10% is levied on jewellery sold in China.
Shanghai Diamond Exchange is the only legal channel in China for the import and export of diamonds for general trading and for the domestic sale of rough diamonds transferred-out in the course of processing trade. For its import and export policies, customs supervision policies, tax policies and foreign exchange management policies, please refer to www.cnsde.com.
Shanghai Gold Exchange began operation on 30 October 2002, signifying that China’s gold market is moving towards complete marketisation. For its business rules and relevant laws and regulations, please refer to www.sge.sh.
Since May 2003, the mainland has abolished the licensing system for running businesses in gold and silver products. As a result, the production, processing, wholesale and retail of jewellery are fully deregulated. Anyone can register as a natural person to operate a business in jewellery production, processing and wholesaling.
On 1 December 2004, Guangdong launched a pilot scheme in delinking gold price from workmanship fee in Guangzhou’s jewellery retail market. From 1 September 2006 onwards, the practice has been 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, 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, delinking gold price from workmanship fee is also practised in cities such as Shanghai and Chengdu. Yet in Fujian province, with the recent adoption of a new set of gold jewellery pricing rules by the Gemmological Association of Fujian, price and fee decoupling has been reversed since 1 May 2015. In other words, material cost and workmanship fee of gold jewellery items are now no longer marked separately in Fujian.
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. While the former stipulates the classification, requirements, test methods, inspection regulations as well as the labelling, packaging, transportation and storage of adornments made from precious metals, the latter standardises the terminology and definitions used in precious metal adornments, materials and craftsmanship.
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 provides text descriptions on quality factors and grades of cultured pearls. In the 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 (for 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 effective since 1 March 2010. This standard provides clear definitions and classification rules for ground and polished natural jade, both inlaid and un-inlaid. On the other hand, GB/T 29155-2012 Transparent (Colourless) Jade Grading, which has been effective since 1 October 2013, is applicable to transparent colourless jade.
The national standard GB/T 25071-2010 Classification and Codes for Products of Gems and Precious Metals was issued for implementation on 1 December 2010. As an important basic standard in the informatisation of China’s jewellery industry, it provides the bases for the management, transmission, retrieval and dissemination of data on information concerning products of gems and precious metals.
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 have been effective simultaneously on 1 February 2011, superseding their respective 2003 versions.
QB/T 4182-2011 Ornament-Labels came into force on 1 October 2011. This standard specifies the basic principles, contents and requirements of jewellery labels. It applies to gems, precious metal jewellery as well as inlaid jewellery, gems and precious metal ornaments formed from such gems and precious metal jewellery for domestic sales.