RAPAPORT... By The market was relatively quiet in March because the Chinese New Year had just ended. Diamond business was also reportedly slow at the China International Gold, Jewellery & Gem Fair-Shenzhen, the first jewelry show of the year, held March 1 to 4. Dealers here are still optimistic about this year’s market atmosphere.
Demand for carat goods has been increasing for some time, generated by promotions by some major jewelers. They hold “carat diamond fairs” regularly, in cooperation with international suppliers, often displaying hundreds of pieces of carat diamonds at one time and in one place.
The retail sector is showing increased optimism, as evidenced by the opening of large-scale jewelry shops and jewelry malls in major cities. While there are some instances of new jewelry stores shutting down within one year, cities like Beijing, Shanghai and Shenzhen have several jewelry shopping centers. And the scale of such centers is on the rise.
Investors have been enthusiastic for this kind of venture in China in recent years. But the question has been raised whether this mass competition mode will lead to further development of the jewelry market or just pull down the premium of the trade.
An increase in the number of outlets mirrors investors’ predictions for the market, but not necessarily true demand from the consumer end. One diamond dealer from Beijing said that if the industry pushes too many loose diamonds to meet the needs of overexpanded retail outlets, it will face a greater risk of delayed payment. He recommended that a dealer be very cautious in extending credit to his clients if the demand is because of an increase in shopping area rather than consumption.
Fancy Shape DemandWhen asked about sales of fancy shape diamonds, Zhou Yi, general manager of Lao Miao International Trade Development Co., Ltd, one of Shanghai’s major jewelers, said that sales of fancy cut diamonds are still very limited in their stores.
Fancy shapes is an area that could be developed to become a new growth area for the diamond business, but it still needs a lot of marketing promotions in China, along with creative product designs.
“One of the problems is that jewelry manufacturers have very few molds for fancy cut diamonds,” Zhou said. “Fancy cut diamonds have their advantages in price, but if we pay an extra fee for molds when we place orders with the jewelry manufacturers, then it will be costly.”
Among fancy cut diamonds, princess cut diamonds are most available in jewelry stores, and are certainly the most popular fancy shape in the China market at present. E.F.D. has been marketing the princess cut in China and launched various promotions, including advertisements and diamond design competitions, in recent years.
New Policy on Corporate TaxA law establishing a unified corporate tax for domestic and foreign companies was adopted by China’s top legislature, the National People’s Congress (NPC), on March 16. The law will take effect January 1, 2008.
China’s current dual income-tax structure has long been the subject of debate. Many Chinese economists, government officials and business leaders have openly criticized the tax policies as being unfair to domestic businesses, while offering advantages to foreign-invested enterprises. Chinese companies currently pay income tax at an average rate of 33 percent, while their foreign counterparts, benefiting from tax waivers and incentives, pay around 15 percent. The bill sets a 25 percent income tax rate for both domestic and foreign-funded businesses. Chinese Finance Minister Jin Renqing said a unified tax code will create a taxation environment that allows fair competition among all ventures registered in China.
With a unified tax, China will no longer seek foreign investment by offering extra financial incentives as it has done for the past two decades. Instead, it will offer a more competitive business environment, including construction of a legal framework.
In order to minimize the impact on foreign investment, a preferential grace period was incorporated in the law, according to Jin. Foreign enterprises will enjoy a five-year grace period, during which the new tax rate will be phased in.
At press time, there is word of a large diamond company in Shanghai that is failing to meet its payments due to fraud by a member of the firm’s staff. Details will be reported as they become available.
The MarketplaceThe majority of goods selling in the market are:
• 10-per-carat, good make, VS+/H-I, selling at approximately $620 to $660. • 6-per-carat, good make, VS+/H-I, selling at approximately $830 to $870.
• 4-per-carat, good make, VS+/H-I, selling at approximately $1,040 to $1,080.
• 3-per-carat, good make, VS+/H-I, selling at approximately $1,400 to $1,500.
The market also accepts:
• 10-per-carat, good make, VS+/I-J, selling at approximately $550 to $580.
• 6-per-carat, good make, VS+/I-J, selling at approximately $780 to $830.
• 4-per-carat, good make, VS+/I-J, selling at approximately $900 to $950.
• 3-per-carat, good make, VS+/I-J, selling at approximately $1,250 to $1,350.
• Demand has increased for 1/3 to 3/4 and 4/4 and up size range, G-I, VS1-VVS, in very good or excellent make.
Article from the Rapaport Magazine - April 2007. To subscribe click here.