Rapaport Magazine

Early 2012 Promising

Hong Kong April Market Report

By Liana Cafolla

Mainland Chinese shoppers, whose spending on jewelry and watches is second only to their spending on cosmetics, were much scarcer in Hong Kong during the Chinese New Year holiday, when they typically stay on the Mainland to participate in the biggest family gatherings of the year.

March saw a rise in retail activity. “We had one of the busiest months yet,” said Sally Ryder of Ryder Diamonds, which specializes in engagement rings. She said stones of around 2 carats are selling well, and dealers are offering substantial discounts. “Prices are becoming a lot more flexible,” she added.

The number of Mainland Chinese visitors to Hong Kong totaled more than 28 million in 2011, or 67 percent of all visitors to the territory, up 23.9 percent from 2010. Those numbers are closely watched by the jewelry industry because Mainland Chinese are estimated to comprise up to 50 percent of jewelry buyers in Hong Kong and close to 30 percent in Singapore.

The Hong Kong Tourism Commission announced plans to encourage even more Mainland traffic in 2012 by allowing increased numbers of frequent travelers from Mainland China to use Hong Kong’s self-service kiosk border control system at certain border crossings. The program, introduced back in 2004, allows frequent visitors to insert a smart identity card into card readers at specific locations to open a first set of gates and then use a fingerprint reader to open a second set of gates. By bypassing the traditional immigration counters, the kiosk system greatly reduces border crossing delays and speeds entrance to Hong Kong.

The tourism commission also announced its intention to help Hong Kong travel agents expand their outbound tour operations from the Mainland. The commission provided no details on how the government plans to help, but said that it hoped to be able to inform tourism operators about progress on this initiative in the near future.

The main purpose of Mainland visitors in visiting Hong Kong is to shop. The big advantage traditionally has been Hong Kong’s tax-free status. But the recent appreciation of China’s renminbi currency against the U.S. dollar — to which the Hong Kong dollar is pegged — means that Hong Kong prices are even more attractive to Mainland Chinese buyers than usual.

The Chinese government revised its projected gross domestic product (GDP) for 2012 downward to 7.5 percent from 8 percent — a goal that had been in place since 2005. While any downturn in China will have a negative impact on the Hong Kong trade, 7.5 percent is still considered solid growth, especially compared to the performance of other global economies.

The lower growth projection is seen as a sign of the Mainland’s firm resolve to reduce the country’s reliance on exports and encourage homegrown consumption in an effort to promote sustainable growth. At a press conference on March 14, outgoing Chinese Premier Wen Jiabao said the revised growth was part of the government’s economic restructuring plan, and that 7.5 percent could not be considered as low. He added that the Chinese economy is slowing due to the impact of the European debt crisis and lower demand from overseas, according to a report by Xinhua, Mainland China’s official news agency.

Hong Kong customers are considered very well informed about jewelry and diamonds. They are aware of the importance of cut, and are impressed by craftsmanship, particularly by the skill required for such cuts as hearts and arrows in round brilliants, which have been selling particularly well in recent months.

Consumers continue to be a little concerned about the global economy, including that of Mainland China, and this is reflected in their shopping habits. Some customers are reluctant to spend as much as they once did and they are more cautious in their selections. With reduced budgets, they are looking for smaller-size stones of less than 1.5 carats or 2 carats. But they are not compromising on the quality.

“Two-carat stones, fancy shape is the number one market demand,” said Mori Boaz of Avi Paz Fancy, manufacturers of straight-edged fancy diamonds.

Elsewhere in Asia, India’s imposition of a 2 percent import duty on polished diamonds in January is not expected to have much direct impact on trade in Hong Kong. However, the tax could lead to increased activity in Hong Kong and Dubai if Indian traders try to circumvent the tax by dealing from other centers.

Meanwhile, the currency crisis in Europe is having no effect on retailers and wholesalers in Hong Kong, at least so far, possibly because the European market is well established and not seen as prone to major fluctuations. Signs of a revival in the U.S. economy are already being felt in Hong Kong. Wholesalers say they have a ready market in the U.S. for any inventory unsold here.

The Marketplace

  • Diamond retailers reported an extremely busy March. Some attribute increased demand to couples planning to marry during the new Year of the Dragon, considered the luckiest year in the 12-year Chinese zodiac cycle.

  • Retail buyers are reporting increased flexibility in pricing, with prices down by as much as 10 percent compared with four months ago.

  • Buyers are making purchases to fill inventory rather than to speculate, which sellers hope means a return to stability. 

  • Engagement rings of around 2 carats are selling strongly, and demand is good for stones of 1.5 carats and below.

  • Stones above 2 carats are slightly down, those above 3 carats even more so.

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