Rapaport Magazine

Restocking Again

China April Market Report

By Julius Zheng

Sales following the Hong Kong show that ended on February 20 suggest that Chinese retailers and dealers are refilling their inventory again, although with reasonable caution so they don’t get into the same situation of overbuying that they did in 2011. Gemological Institute of America (GIA)-certified round diamonds with triple EX cuts were the first goods to move, and they paved the way for other sales. The widespread overstocking problem that was caused by speculative purchasing has been eliminated by a few months of sharply decreased buying or no buying at all. 

In the first two months of 2012, China’s gold, silver and jewelry retail reached $6.74 billion, a 19.1 percent growth, according to data released by the country’s National Bureau of Statistics on March 9. The total retail sales of consumer goods increased by 14.7 percent to $531.12 billion. The bureau released the data for January and February together because the dates of the Chinese New Year, a prime jewelry gift-giving and wedding holiday, are different each year.

The growth rate in jewelry sales from local bureaus of statistics varied by region. Beijing showed slower growth in consumption by 15.8 percent, and 8.8 percent growth in jewelry sales, and the growth rate has sharply decreased. The Beijing report also revealed that its consumption opened high but lacked momentum.

On the other hand, Anhui Province, a less wealthy region, showed 22.1 percent growth in overall consumption and a 33.1 percent increase in jewelry sales. With the national government’s lowering of its gross domestic product (GDP) growth forecast to 7.5 percent for 2012, and continuing uncertainty over the domestic and global economy, caution can be expected to dominate the overall consumer market in the next months.  

Chongqing and Chengdu, the two most important cities in the western part of China, are becoming more and more important in the jewelry market. Nine Hong Kong jewelry companies from the Hong Kong Jewelry Manufacturers’ Association (HKJMA) participated in a recent B2C shopping festival in Chongqing that showcased Hong Kong products. Although the more remote location of the show affected foot traffic and sales were below expectations, the exhibitors still felt that they had gained experience that would be helpful in developing their businesses further. As a mountain city with a population of 30 million, old historic districts and new retail sectors catering to wealthy consumers, Chongqing’s retail sales numbers for general merchandise are rising quickly.

Although its jewelry and diamond business is still developing and Chongqing is not yet a very open market, it reminds some of the situation in Beijing and the advanced coastal cities ten years ago. That’s why many merchants see huge potential for growth in the city over the next few years based on the fast-rising overall consumption and the enormous population.  

The diamond and jewelry business in Chengdu, the most important city in the west, developed much earlier than Chongqing’s and has already been a hot spot for several years. It is home to many traditional jewelry brands, as well as website-based diamond retailers. The city also has the leading consumer confidence level in China. In 2011, Chengdu boasted an 18 percent increase in consumption and a 37 percent increase in the sale of silver, gold and jewelry. 

Natural fancy color diamonds are getting increased attention as those Chinese consumers who already own white diamonds develop more sophisticated appreciation for the beauty and rarity of natural colored varieties. At the same time, with the inflation rate high and the credibility of bonds issued by many countries becoming questionable, large diamonds can be a good store of value. In addition, more diamond merchants in China are increasing their share of colored diamond business since it can be more profitable than the fiercely competitive white diamond market.

Foreign suppliers also are increasing their promotion of colored diamonds to potential buyers from China. “Natural colored diamonds make up only 1 percent of global production, which gives them ‘unquestionable value,’” said Bruno Scarselli, who represents the third generation of U.S.-based colored diamond specialist Scarselli Diamonds. “There is a tremendous demand for yellow diamonds, but also blue and pink,” Scarselli told Reuters at the BaselWorld watch and jewelry show. “There are not enough diamonds to satisfy one-tenth of the new billionaires that are created every month in China.”

The Marketplace

  • 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. 

  • Demand has increased for princess cuts but there are not enough goods available.

  • Natural colored diamonds have increased in popularity with those Chinese buyers who have already bought white diamonds.

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

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