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China's jewellery market soars, but may be derailed by over-supply

Despite China's status as the second largest jewellery market in the world, concerns are growing that supply is set to out-strip demand, amid worries that global brands may yet swamp the sector, leaving domestic producers struggling.

Photo: Jade: China’s most mystical and abiding gemstone.
Jade: China's most mystical and abiding gemstone.

While sales of jewellery have been steadily growing on the mainland over recent years, a number of industry figures are now concerned that a lack of experienced jewellery designers and craftsmen may be impeding the development of the sector. This was one of the key issues highlighted by a number of attendees at the recent Beijing International Jewellery Exhibition.

Despite such reservations, levels of jewellery purchases across the mainland have been steadily rising in line with economic growth and the rise in per-capita income over recent years. Jewellery has become one of the leading three items of consumer expenditure, along with residential property and automobiles. As a result, the Beijing International Jewellery Exhibition has become one of the key events on northern China's expo calendar.

Sales of jewellery soar

Over recent years, the revival of the global jewellery trade has helped stimulate growth in the mainland market. According to figures from the Gems and Jewelry Trade Association of China, total jewellery sales in China have risen dramatically of late. This has seen them grow from Rmb180 billion in 2008, to Rmb220 billion (2009), Rmb250 billion (2010), Rmb380 billion (2011) and Rmb400 billion (2012). This has given China one of the most dramatic growth rates, in terms of jewellery sales in the world, of any global market. It has also clearly established it as the world's second largest jewellery-buying country (after the US).

According to official figures, sales of gold amounted to 75% of 2013's Rmb400 billion-plus sales in the sector, while sales of diamonds accounted for around Rmb30 billion. By comparison, jade, one of the most traditional and significant precious stones in Chinese culture, had a market turnover value of between Rmb20 billion and Rmb30 billion.

According to Zheng, an experienced dealer in jade from Yunnan, the material retains real significance for many Chinese purchasers. At present, he believes, the jade market remains reassuringly buoyant, with many consumers demonstrating a lasting affection for the substance, as well as growing market knowledge.

Despite this growth, though, some senior figures in the sector are now urging caution. Shi Hongyue, Vice President of the Gems and Jewelry Trade Association of China, said: "Although China's retail sales of jewellery exceeded Rmb400 billion in 2013, there remains a danger of excess capacity in the sector." Shi has seen enormous changes in the sector since the mainland adopted its reform and opening up policies. Of late, he has also noted a shift from quantitative to qualitative buying behaviour by many consumers.

He said: "While the jewellery market is clearly enjoying rapid development, there is now a real danger of excess production. Even though the market has seen double-digit growth over the last two years – far higher than the GDP growth rate – the growth in the supply chain still far exceeds consumption growth."

Number of jewellery makers exceeds 3,000

Shi's concerns are borne out by the fact that the number of mainland jewellery producers has risen from less than 100 20 years ago to more than 3,000 today. The number of companies selling jewellery has also grown, increasing from an initial several hundred to more than 20,000 at present. In line with this, total turnover has soared from Rmb160 million in 1993 to today's Rmb400 billion-plus level. It has also seen China established as one of the world's most competitive jewellery processing, consumption and trading centres.

Amid this growth, however, the organisers of the Beijing expo believe that none of the many emerging domestic jewellery brands has yet secured a dominant market position. This is confirmed by the fact that the five top-grossing companies in the sector have a combined market share of only 20%, with no clear hierarchy of businesses apparent.

Photos: Bangles and bracelets: beneficiaries of greater disposable income.
Bangles and bracelets: beneficiaries of greater disposable income.

The sector, though is continuing to grow, largely fuelled by the increased proportion of income that many mainland consumers now allocate to jewellery purchases. This has grown at an annual rate above 10% for many years, culminating in a 19% surge last year. The resulting high-gross profits have inevitably attracted many foreign companies into the mainland market.

With this level of sophisticated global brand owners increasingly actively targetting mainland consumers, there are fears that mainland companies lack the resources to compete. The problem is hampered by a lack of domestic brand differentiation and a lack of perceived brand values on the part of many home-produced products.

As a number of international brands, including Cartier and Tiffany, accelerate their bids for market share in China, the manufacturing, logistics and service branches of the jewellery industry are being obliged to play catch-up in line with this new reality. It is believed that this transformation and upgrade pressure will reshape the industry and create a discernible hierarchy of brands and traders.

Against the backdrop of this increasingly internationalised environment, those jewellery producers that have a large brand portfolio and considerable competitive strength are set to perform particularly well. For such businesses, expensive items and unique designs are seen as the key to success. For other manufacturers, low and middle range products with a mass-market appeal are also expected to remain popular. A number of these small and medium-sized producers, though, may find it difficult to compete and will have to transform their offer in line with changing market requirements.

A key element in this transformation will inevitably be the e-commerce sector. Currently, a degree of divergence is emerging in terms of the online offers in the industry. While there are now a number of digital platforms operated by traditional jewellers – including Chow Tai Fook, CHJ, Luk Fook and GSS – there are also a number of e-commerce-only operators making their presence felt, notably zbird.com. As yet, market analysts believe that no dominant players have emerged in the jewellery e-commerce sector, leaving huge potential for new entrants.

Experienced but lacking specialised skills

Aside from excess supply, one of the other key concerns in the sector is a shortage of jewellery professionals. This shortfall of experienced staff is seen as a problem at every level of the business, including managerial, technical, design, marketing and sales personnel. Although a number of vocational training programmes have now been introduced, they are not expected to fill the gap in the short term.

Since the 1980s, the number of people employed in the jewellery sector has grown from around 20,000 to more than two million. Unfortunately, this rapid growth means that few of these new employees have any real training or experience.

According to one Beijing-based jewellery manufacturer, experienced designers and craftsmen are in very short supply. The overall standard of personnel is not seen as high, with the majority of such individuals having only on-the-job training.

In bid to counter this, the National Gemological Training Centre and the Gems and Jewelry Trade Association of China are now organising a number of annual training courses. Additionally, several jewellery production centres are also planning to establish dedicated technical academies. Unfortunately, the timelag involved means that such initiatives will not come to fruition fast enough to match current demands.

Photo: The Beijing International Jewellery Exhibition: a true gem.
The Beijing International Jewellery Exhibition: a true gem.

The 10th Beijing International Jewellery Exhibition was held at the National Agriculture Exhibition Center in Beijing on June 6 2014 and attracted more than 200 exhibitors.

Xu Lin, Special Correspondent, Beijing

Content provided by Picture: HKTDC Research
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