Rapaport Magazine

Regulating the Jewelry Trade

China May Market Report

By Julius Zheng


With the domestic jewelry industry and jewelry consumption developing so quickly, quality issues are becoming a subject of greater concern among consumers. And quality complaints have been raised, even with first-tier brand names. Centered around annual International Consumers Day on March 15, the China Consumers’ Association and local media raised the quality flag once again by publicizing the issue.

Consumer complaints about domestically produced jewelry generally focus on the purity of the metal, the grading of the diamonds, craftsmanship, potential safety hazards in the design of the jewelry, exaggerated and/or false representations and difficulties in returning and exchanging faulty jewelry. In addition, in popular tourism areas, there are also complaints about the overpricing of low-quality items.

One reason for the increase in quality issues is that the modern Chinese jewelry industry is relatively young — starting only in the 1980s — but it has been expanding at a very fast pace. Many new trade members have been brought into the industry in recent years, along with new capital, and some of those new players were hoping to make quick money. When competition within the industry heated up, and the costs of space, materials and human resources increased, some firms chose to seek a “shortcut” to quality control and management.

As a result of the quality complaints, many jewelry firms are re-examining their management and production systems and trying to establish quality as a core value of their companies. At the same time, they are paying a lot more attention to control of the materials and production processes, scientific standards, certification of jewelry and gemstones and more education for staff.

EXPORTS HIT $27 BILLION

According to a recent report by China Gold newspaper, jewelry exports reached $27.3 billion in 2011, an increase of 121.63 percent from 2010. Jewelry exports totaled slightly more than $5 million in 2005, and rose steadily in each successive year until they declined in 2009 in the midst of the global economic crisis. In 2010, jewelry exports climbed by 66.38 percent over the previous year, followed by a further increase in 2011.

Trade members offer four reasons for the continued increase. First of all, the craftsmanship of China’s exported jewelry is good in general. Many large jewelry manufacturers have established their factories in Shenzhen, Panyu and Qingdao. Second, the world jewelry market improved in 2011, and global gold demand reached 4,067.1 tons. At the same time, the demand for diamond contract cutting also increased from 7.81 million carats in 2010 to 12.1 million carats in 2011. Third, materials such as gold and diamonds posted price increases of approximately 30 percent in 2011, resulting in higher dollar export totals. Fourth, there is more money available and consumers, as well as investors, wanted to use it to buy something, including precious metal products and big diamonds, in 2011.

RETAIL COOLS DOWN

According to a recent report by Guangzhou Daily, the general retail sales of 50 major Chinese retail firms increased by 8.15 percent year on year in the first quarter of 2012; however, the rate of growth slowed from earlier forecasts. Sales of cosmetics and food grew by 14.23 percent and 13.49 percent, respectively, while electronic appliances increased by only 1.39 percent.

In March, general sales increased by 11.56 percent, but silver and gold jewelry by only 1.9 percent. One reason was the decline in the price of gold, which caused many Chinese consumers, who also regard gold as a store of value, to pull back from jewelry purchases. A number of trade members tried to jump-start jewelry sales by launching campaigns in April to promote sales during the Labor Day weekend from April 29 through May 1, a prime time for weddings.

EXPANDED TRADING CENTER

Phase Two of the Kingliving International Jewelry Trade Center celebrated its grand opening recently as an important expansion of the Shuibei jewelry trading area of Luohu District in Shenzhen. The new center is located in the National Gem Testing Center Building, with 215,000 square feet of space in four stories for jewelry, diamond and colored stone companies. Established five years ago, Phase One of the Kingliving center is located only three-tenths of a mile away from Phase Two and has 320,000 square feet of retail space in seven stories.

The trade center has played an important role in the development of the Shuibei jewelry trading region, which is home to several trading centers and hundreds of gem and jewelry companies. While some trade centers are successful, a small number are not. To assure it is one of the successful ones, developers of the Phase Two complex of the Kingliving center are offering various tenant support services, including help with company registration, human resources, financing, security and company communication. The importance of using support services to attract tenants was illustrated by Lu Jialiang, vice president of the trade center, with the saying, “When the nest is warm, the phoenix will come.”

 

THE MARKETPLACE

  • Wholesale sales were steady in advance of the busy retail sales season surrounding the Labor Day weekend from April 29 through May 1.

  • Demand is strong for .30-carat to 1.1-carat round D-H, VS1-SI2 diamonds with Gemological Institute of America (GIA) certificates, preferably in triple EX cut.

  • Asking prices for 1-carat diamonds have increased.

Article from the Rapaport Magazine - May 2012. To subscribe click here.

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