Chinese diamond and jewelry buyers have different business philosophies. Many buyers are willing to pay cash in exchange for a very good discount, especially for the popular goods in China, such as Triple EX goods with Gemological Institute of America (GIA) certificates. When buyers purchase goods at a good price, they can sell at a competitive price quickly, collecting the cash to buy goods again — completing a healthy business circle.
Bigger retailers, especially chain stores, tend to purchase diamonds on credit terms, commonly 30 days to 60 days. Some of them even demand an option of partial return or exchange. For melee goods, the jewelry factories very often ask their suppliers for a much longer term, sometimes up to 270 days.
For a long time, Chinese and international suppliers, struggling with whether or not to offer credit terms, have been trying to calculate the risks of credit sales. The increased opportunities of sales always come with increased risks, especially when the credit reference system in China is far less developed than it is in, say, New York City.
Also, the suppliers have different strategies. Some never offer credit terms, others use a mixture of cash sales and credit sales, while still others give out credit aggressively to achieve more market share.
All-Cash Deals Avoid Problems
In general, it is always better to sell goods for cash, even at a discounted price. Healthy markets cannot develop if all buyers only want to take diamonds on credit or on consignment. That is especially true in international sales. If a foreign supplier has no local office in China, it will have difficulty accessing the local court system if problems arise with a sale. Doing business through legal channels is especially important because smuggled goods have hardly any legal protection at all. Even if the supplier has a China office, collection actions and possible lawsuits can take a long time and the results are uncertain. Getting to know clients, carefully assessing all risks, drafting proper contracts, monitoring bills and payments closely and frequent communication with buyers are very important in managing credit in China.
“Offering credit terms in China is the same as anywhere else,” said Hertz Hasenfeld, vice president of Hasenfeld-Stein Inc., a diamond manufacturer with headquarters in New York City and a diamond factory in Mainland China. “You need to do a lot of homework, find out about the background and the transaction history of the buyer. Credit terms should only be offered when you are very comfortable with the company and you are certain that it has a good track record, and when you have experience handling credit.” As a foreign supplier who has been doing business in China for many years, Hasenfeld also pointed out that retailers need more credit than wholesalers. “Credit terms is not the main issue, price is.”
Hong Kong Show
The three major Hong Kong shows — held each March, June and September — are the most accessible and popular international shows for buyers from Mainland China. Due to the strong presence of international diamond exhibitors, many of them representing diamond manufacturers and dealers, more and more buyers from Mainland China come to source diamonds at the Hong Kong shows. The Hong Kong International Jewellery Show, organized by the Hong Kong Trade Development Council (HKTDC), ran from March 4 thru March 8, featuring 2,869 exhibitors and almost a million square feet of exhibition area. An estimated 37,000 visitors from around the world attended the five-day show.
The current market appears more advantageous to suppliers. While the Chinese buyers were obviously astonished by the diamond prices at the show, they still placed orders since demand is good in China and the buyers need merchandise to keep their businesses going. Heated price negotiation went on in the show booths, but very often deals were done because both sides had good intentions to close sales.
The ninth edition of the China International Gold, Jewellery & Gem Fair, held from February 26 through March 1 in Shenzhen, the city adjacent to Hong Kong, featured more than 350 exhibitors from 12 countries and regions, certainly a weaker presence of diamond exhibitors and visitors compared to the Hong Kong shows.
The Marketplace
• The wholesale market was stable after a good retail season that opened the Year of the Rabbit.
• Overall demand remains very strong and there are even shortages for rounds in .30 carats to 1.10 carats, D-H, VS, GIA-certified diamonds in Triple EX, Double EX and EX cut grade, with none to faint fluorescence. There was increased price resistance from buyers after the most recent round of price increases, but they were still placing orders. Also, Triple VG goods are showing better sales.
• Sales for diamonds over 2 carats have increased, and there is even occasional demand for very big diamonds up to 20 carats.
Article from the Rapaport Magazine - April 2011. To subscribe click here.