China Market Report

RAPAPORT... An economic stimulus package was announced in November by China’s central government amid rising concern about a sharp slowdown in the world’s fourth-largest economy. The stimulus package, estimated at approximately $586 billion, will be spent over the next two years to finance programs in ten major areas. China will loosen credit conditions, cut taxes and embark on a massive infrastructure spending program in a wide-ranging effort to offset the influence of global financial turmoil by boosting domestic demand.
Slower Growth
China’s retail sales registered a slower year-on-year growth rate of 22 percent in October 2008 due to easing inflation and weaker consumption sentiment in a slowing economy. Sales reached $148 billion for the month, according to the National Bureau of Statistics (NBS). The pace was down from the 23.2 percent growth reported for both September and August, and 23.3 percent in July. October export growth slowed further to 19.2 percent from 21.5 percent in September. Retail sales for the year through October 2008 increased 22 percent year-on-year, according to the NBS. The Consumer Confidence Index dropped slightly in recent months as the general public became more cautious about spending because of the global and domestic economic situation and the volatile China stock market. Consumers are feeling less secure about their income for 2009 and are putting aside more money for rainy days.

Jewelry retail sales have fallen off since October because of the macro-economy. Traditional retail stores suffer more because their clients’ reasons for buying are more diverse, including a wedding occasion, as investment and for gifting. Both investment and gift purchases have decreased. The website-based diamond jewelry retailers, such as 9diamond and Zbird, which offer lower prices than traditional retail shops, reported a relatively slight drop in sales. In a discussion with RDR, Stone Xu, copresident of Zbird, which operates showrooms in five major cities in China, said that its business has been less affected since its clients usually buy diamonds for wedding purposes and demand in this area has not decreased. The 0.50-carat range is still relatively strong and the company has introduced lower-price products in response to the current market situation.

Difficulties
Meanwhile, the manufacturing and wholesale sector is experiencing greater difficulties. The wholesale market has not improved even though November should be the time to prepare orders for the Chinese New Year in January 2009. Many wholesalers sense more hesitation from buyers and note that they are demanding more discounts and more liberal credit terms, especially after the Rapaport price list was adjusted twice recently. In Guangdong province, the jewelry and diamond manufacturers are suffering from a decrease in global and domestic demand, and some of them have closed or cut back on their workforce.

Jacky Jiang, managing director of Eurostar Diamond Shanghai Traders, which is reporting relatively satisfactory sales, told RDR, “I believe this is a temporary difficult period but all trade members in China, upstream and downstream, should cooperate and share the burden. If the downstream tries to push the risks to the upstream, the manufacturers and wholesalers will suffer and the whole industry will be in more trouble.”

Diamond and Jewelry Summit
Despite the current global financial turbulence, the consensus at the first Middle East-China Diamond and Jewellery (MECDJ) Summit held in Dubai in November was that the emerging markets, such as the Middle East, Mainland China and Hong Kong, would continue to thrive in the long run. More than 800 international trade members attended the two-day meeting. Organized by the Dubai Multi Commodities Centre (DMCC), the summit was inaugurated by Ahmed Bin Sulayem, executive chairman of the DMCC, and Wang Weiwei, deputy secretary general of the Gemology Association of China.

“Growth is not only defined by numbers on a page or by percentage calculations. Growth is what I see around me today and every day when I go to work. Even amid the current global economic crisis, it is important for us to focus on the positive,” Bin Sulayem said in his opening address. “And the positive fact remains that countries like China, India and many Middle Eastern states will continue to register positive growth.”

The Marketplace
• The diamond market slowed in both the retail and wholesale sectors.
• Most in demand are rounds in 0.15- to 0.69-carat G+, VS and 0.15- to 0.69-carat
I-J,VVS.
• Demand is lower for 1-carat+ H+, VS+.

Article from the Rapaport Magazine - December 2008. To subscribe click here.