Transcript Platinum - Hong Kong Market
Part 2: China Jewellery Market Structure
Jewellery Market Structure
Production Centre concentrated in China South, which occupies 70% of nationwide production. Shenzhen, Panyu, Shunde, Dongguan are the key production centres.
Production Centre
Key Production Centres
Export Production Centre
2,000 Hong Kong export manufacturers with 300 being the major exporters.
Manufacturing centered in the Guangdong area. Mainly gem-set jewellery for export
Domestic Manufacturing/wholesaling
Gold Jewellery Platinum Jewellery Diamond Jewellery
450 official licensed manufacturers/ wholesalers
Over 100 platinum manufacturers
Some also manufacture gold
500 domestic manufacturers
Retailing
Gold Jewellery Platinum Jewellery Diamond Jewellery
10,000 domestic retail outlets
Additional of 200 chain store operation by HK retailers
Sharing the same gold retail outlets
Additional of over 380 chain stores from HK
Sharing the same pt and gold retail outlets
Additional of over 300 chain stores from HK
Retail Consumption Centres
Shanghai, Beijing, Guangzhou and Shenzhen are the first tier jewellery consumption centres
However, 2nd tier markets are growing. Markets like Hangzhou, Nanjing, Wuhan, Tainjin, Chongqing, Shenyang, Dalian, Wenzhou, Chengdu are the key centres.
First Tier Markets
Shenzhen Wenzhou Dailian
Jewellery Retail Shops Coverage of HK Jewellers Well-Covered Nationwide
Part 3: Policy and Regulations
Jewellery Market in China
Platinum / Diamond Markets
Gold Market
Free
Regulated
Taxation
Jewellery Market : Taxation
Gold Jewellery Import Tax*
26.7%
Special license for import and export 17% VAT Tax
17%VAT on added value of manufacturing and retailing Platinum Jewellery
35%
3% for raw material
17% VAT on added value Diamond Jewellery
26.7% for diamond set with gold/silver
35% for diamond set with other precious metal * As of Jan 1, 2003
17% VAT on whole value Consumption Tax
5% at retail level
5% at retail level
5% at retail level
China’s Tariffs Reduction Schedule for Jewellery Imports HS Code 71131100 71131910 71131990 71132000 71141100 71141900 71142000 71161000 71162000 Description Rate (%) at date Of accession Committed Rate(%) Under WTO Agreement 2002 2003 2004 2005 30 26.7 23.3 20 Jewellery & parts thereof, Of Silver Jewellery & parts thereof, Of Gold Jewellery & parts thereof, Of other precious metals 33.3
33.3
36.7
Jewellery & parts thereof, Of base metal clay with precious metals Silversmiths’ wares & parts thereof 36.7
36.7
Goldsmiths’ wares & parts thereof, of precious metals 36.7
Gold/silversmiths’ wares & parts thereof, of base metal clad with precious metals Articles of natural or cultured pearls 36.7
42.5
Articles of precious or semi precious stones 36.7
30 26.7 23.3 20 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 38.75 35 35 35 38.75 35 35 35 35 35 35 35
Part 4: Gold, Pt, Diamond Market Highlights
Gold Market Highlights
Jewellery retail market opened in 1984
Gold was highly regulated and tightly controlled by the PBC under Gold Monopoly Policy for 50 years. State control purchase, operation and distribution of gold. Special license are needed for production. No bars or foreign gold coins allowed.
However, de-regulation of the gold market was approved by the State Council and freeing of the market is divided in 3 phases:-
Gold Market Highlights
Phase 1: End of gold monopoly system and establish the Shanghai Gold Exchange
Phase 2: Gold licensing system will gradually be removed
Phase 3: Import and export control will gradually be lifted
Gold Market Distribution System
Smuggled gold to manf. & Jewellery to wholesalers
•
Illegal supply to Manufacturers
•
Smuggled to HK China Gold Mine Supply Imports by Authorized Commercial banks SHANGHAI GOLD EXCHANGE GOLD GOLD Only 108 members can trade In the Exchange GOLD Smuggled gold jewellery supply from domestic/HK Wholesalers, or direct from overseas suppliers Finished Jewellery Finished Jewellery Finished Jewellery 17%VAT IS EXEMPTED IF TRADED IN THE EXCHANGE 17%VAT ON ADDED VALUE 17%VAT ON ADDED VALUE 5% CONSUMPTION TAX * New regulations subject to change in June, 2003
Platinum Market Highlights
Platinum entered the market in 1996, starting from a zero base market with now a 40-60 tonnes market
Under the “Gold & Silver Administration” Regulation, there is no control on platinum for import/export, manufacturing, wholesaling and retailing
No special license required for foreign and domestic players for production, wholesale and retailing for domestic market
Platinum Market Distribution System
Mostly ILLEGAL Pt RAW MATERIALSUPPLY FROM HK Smuggled Pt Jewellery to wholesalers Smuggled Pt Jewellery supply from domestic/HK Wholesalers, or direct from overseas suppliers No need to apply License Finished Jewellery No need to apply License SHANGHAI GOLD EXCHANGE Finished Jewellery Official Importers China Platinum Cooperation Currently only 108 members can trade In the Exchange.
Will recruit more members 17%VATEXEMPTED WHEN TRADED IN THE EXCHANGE Finished Jewellery 17%VAT ON ADDED VALUE 17%VAT ON ADDED VALUE 5% CONSUMPTION TAX
Diamond Market Highlights
Rough Diamond is traded in Shanghai Diamond Exchange. The Center has 94 members, 63 of which are foreign-funded or from overseas. It was authorized to deal with all diamond import and export for general trade.
Diamond Market Highlights
China imported nearly US$1 billion worth of diamond and related products through the Shanghai Diamond Exchange Center, the only legal trading channel in China, in 2002.
The figure marks a rapid growth in the import of diamond through legal channel since the central government allowed the center to be exempted from tariffs on diamond products last June.
However, such an import volume lags far behind consumer demand for diamond products in China. Diamond smuggling is still a widespread problem.
Diamond Market Distribution System
Smuggled diamond Jewellery to wholesalers Smuggled diamond Jewellery supply from domestic/HK Wholesalers, or direct from overseas suppliers
•
Illegal supply to Manufacturers
•
Smuggled from HK No need to apply License Finished Jewellery SHANGHAI DIAMOND EXCHANGE DIAMOND No need to apply License DIAMOND Import of Rough Diamond Finished Jewellery Only 94 members can trade In the Exchange DIAMOND Finished Jewellery 3% IMPORT TARIFF, VAT AND CONSUMPTION TAX ARE EXEMPTED IF TRADED IN THE EXCHANGE 17%VAT ON WHOLE VALUE 17%VAT ON WHOLE VALUE 5% CONSUMPTION TAX
Recent Development
Recent Development
Free gold jewellery retail price control by State Price Bureau : Aug 1, 2001
License system for gold jewellery retailing abolished in Nov 1, 2001
Shanghai Gold Exchange officially operated in Oct, 2002 PBC relinquished its role for the purchase and allocation of gold Raw material purchased in the exchange exempted from the 17% VAT Gold Price quoted daily by the exchange
Gold Transaction in SGE
Oct 2002- Aug 2003, 166 tonnes of gold was traded in SGE Month/Year Oct/2002 Nov/2002 Dec/2002 Jan/2003 Feb/2003 Mar/2003 Apr/2003 May/2003 Jun/2003 July/2003 Aug/2003 Au 9995(KG) 232 4,869 13,570 13,570 9438 6768 12,648 13,932 17,748 15,974 18,242 Au9999(KG) 418 1,266 2,700 2,700 7,547 7,667 6,526 1,676 1,314 5,217 2,138 Total (KG) 650 6,135 16,270 16,270 16,985 14,435 19,184 15,608 19,062 21,191 20,380
Recent Development
State Council announcement made on March 25, 2003
–
Abolition of special license for Gold manufacturing and wholesaling from PBC, only register in the provincial Business Registration Bureau. Only apply to Chinese entities
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The liberalization implemented in June 2003 (actual provincial implementation may take longer time)
–
Though not allow participation by foreign entities yet will provide a springboard for easy entry into domestic markets
Special license for gold import / export still in place
Pt Trading in SGE
On July 30, Shanghai Gold Exchange (SGE) started trial platinum trading among its 108 members and their agents. Now Pt99.95 is the 3rd transaction product following Au99.99 and Au99.95 since SGE opened on October 30, 2002.
Aug 13 – official pt trading in SGE
According to the authentication of Ministry of Finance and State Administration of Taxation, China Platinum Cooperation is the only authorized importer of platinum at SGE.
Recent Development
Platinum traded in the SGE is exempted from 17% VAT on raw material
5% consumption tax charge on retail level rather than at manufacturing level.
Platinum Traded in SGE Since Launched
August 13 August 30
4,276 KG
Sept 1 Sept 17
1,485 KG
Recent Development
Shanghai Diamond Exchange, open in Oct 2000, but officially operated in June, 2002 Exempted from 3% import tariff
Recent Development
Beginning Feb 2003, foreign-owned diamond companies who are members of the Shanghai Diamond Exchange (SDE) can now sell diamonds in the domestic market in China without going through some native Chinese company.
This new measure has brought the privileges enjoyed by overseas members in line with those given to the native Chinese company members
Recent Development
The overseas company members can apply for the import and export right with the Shanghai Diamond Exchange Administration office located at the exchange. The processing is free of charge and is likely to take one month. The import and export right is permanent.
With the import and export right, these overseas company members can apply for temporary exemptions from various taxes with the Customs office at SDE and are free to visit their customers with the goods or exhibit and sell their merchandise at trade fairs taking place all over China. They are only required to pay the duties once the deals are closed.
Part 5: CEPA Advantage
CEPA
A Landmark Free Trade Agreement -Cepa Signed on June 30 between the Chinese govt and HKSAR promises to give Hong Kong companies a 2 Year head start into the vast Chinese market over their international rivals.
Zero tariff will apply to 273 products, including many high-tariff sectors, such as jewelry and watch.
CEPA
Cepa will enable HK made jewellery products entering the China market with zero import tariff as of Jan 1, 2004
CEPA contains no agreed-upon definition for the "made in Hong Kong" designation. Hong Kong and Chinese negotiators have until the deal takes effect Jan. 1, 2004, to come up with a definition for goods and services originating in Hong Kong, the primary requirement for eligibility for the zero tariff rating.
Serial No 149 150 151 152 153 154 155 156 157 158 159 160 Mainland 2001 Tariff Codes Product Description 71131100 71131910 71131990 71132000 71141100 71141900 71142000 71151000 71159000 711459090 711461000 711462000 Articles of jewellery & parts, of silver Articles of jewellery & parts, of gold Articles of jewellery & parts, of other precious metal Articles of jewellery & parts, of base metal clad with precious metal Articles of silversmiths’ wares & parts Articles of goldsmiths’ & silversmiths’ wares & parts, of precious metal Articles of goldsmiths’ & silversmiths’ wares & parts, of base metal clad with precious metal Catalysts in the form of wire cloth or grill, of platinum Articles of precious metal or of metal clad with precious metal, for technical laboratory use Articles of precious metal or of metal clad with precious metal, for other use Articles of natural or cultured pearls Articles of precious & semi-precious stones Mainland 2003 MFN Tariff Rates Mainland 2004 Tariff Rates Under CEPA 26.7
26.7
35.0
35.0
0 0 0 0 35.0
35.0
35.0
3.0
3.0
35.0
35.0
35.0
0 0 0 0 0 0 0 0
Latest Development of CEPA
“Principal Processes” likely to apply as Hong Kong Made Products like stone casting and setting.
Criteria regarded as too narrow
Latest Development of CEPA
Even if HK made products could enjoy zero tariffs, the 17% VAT and 5% consumption tax on the total value will make the products not competitive in the China market.
Latest Development of CEPA
Hong Kong Manufacturers Associations submitted proposal to the government
Principal Processes should also include
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Stone Cutting and polishing
– –
Stone Matching Design and Model Making
Relaxing licensing for gold jewellery manufacturing, wholesaling, retail and import/export for Hong Kong manufacturers
Details of the requirement has yet to finalize in end Sept. No immediate action will be taken by the trade.
CEPA Impact
Low end jewellery will not be benefited – more cost effective to produce in China
High value-added jewellery will have the potential
CEPA Impact
Italian companies in corporation with HK companies
Setting workshops in HK to quality for HK made products
Potential for Italian Branded Jewellery officially entering into the market.
Potential at medium to high end market
Part 5: Consumer Insight
Preference of Jewellery in China
80% 70% 60% 50% 40% 30% 20% 10% 0% Pl atn iu m D ia m on d G ol C d ar at G Ja ol de d /Em er al d C Si ol lv ou er re d Sto ne Source: HK TDC Survey Pe ar l
Preference of Jewellery in China
Platinum is the most preferred jewellery, especially in Beijing and Shanghai
People in Shanghai comparatively prefer to diamond
Gold is more preferable in Guangzhou & Beijing
K-gold in Guangzhou is more acceptable, rather than in Shanghai
Ownership of Piece Type
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% N ec kl ac e R in g B Ea ra rr ce in le g t/B Pe an nd gl an e t/C ha rm B ro oc h H ai r G ri p Ti e C lip Fo ot ch ai n cu ff lin ks Source: HK TDC Survey
Piece Type Purchased in Last 12 Mth
60% 50% 40% 30% 20% 10% 0% N ec kl ac e R in g B Ea ra rr ce in le g t/B Pe an nd gl an e t/C ha rm B ro oc h H ai r G ri p Ti e C lip Fo ot ch ai n cu ff lin ks Source: HK TDC Survey
Favourable Piece Type
Necklace is the most favourable item, followed by ring: nearly 80% people owned these product
Earrings and bracelet/bangle are the next: ownership over 40%
There’re differences between cities:
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More people in Guangzhou have bracelet/bangle
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More people in Shanghai prefer pendant/charm In Beijing, ownership of ring and earring is higher than other cities, but bracelet/bangle and brooch was comparatively lower
Spending
Average Spending by City
Overall Average Spending was RMB 1,400 (Euro 158) RMB Shanghai got the highest, RMB 2,000 (Euro 225)
2500 2000 1500 1000 500 0
Al l G ua ng zh ou Source: HK TDC Survey Sh an gh ai B ei jin g Da lia n Ch en gd u
Jewellery Spending
Shanghai and Beijing were comparatively higher, RMB 2,000 (Euro 225) and RMB 1,700 (Euro 191) respectively
Nearly 40% respondents are willing to spending RMB 1,000
13.5% of respondents willing to spend over RMB 5,000 (Euro 563)
Average Spending by Jewellery Type
Ring: The Highest Ave Spending, RMB 1,200 (Euro 135) RMB 1,400 1,200 1,000 800 600 400 200 0 R in g N ec kl ac e Pe nd en B t ra ce le t/b an gl e Ea rr in g Source: HK TDC Survey
Brand Preference
Brand Preference in China
HK Brands are more preferable while Int’l Brand does not have advantage.
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 44.10% HK Brands Source: HK TDC Survey 4.40% Int's Brands 37.90% Local Brands
Int’l Brand Preference in China
Consumers in BJ more prefer Int’l Brand 8% 7% 6% 5% 4% 3% 2% 1% 0% G ua ng zh ou Source: HK TDC Survey Sh an gh ai B ei jin g D al ia n C he ng du
Brand Preference
Hong Kong brands are popular in China, especially in the South
In Shanghai and Chengdu, famous local brands have firm foothold
Local brands are popular at their own cities only, but there’s no dominant nation-wide local brands
Shopping Behaviour
When to Shopping
80% 70% 60% 50% 40% 30% 20% 10% 0%
lid ay W ee ke nd /Ho Lo Source: HK TDC Survey ng Ho lid ay Af te r W or k S pe cia l F es tiv e V ac at io n
When to Shopping
70% people go to shopping during weekend or holiday
It’s popular for people in Beijing and Shanghai go to shopping at weekend/holiday
Long holiday was the second highest occasion, like Chinese New Year, Labour’s Day and National Day are the peak shopping season
Where to Shopping
Consumers prefer Jewellery Counter in Dept Store 80% 70% 60% 50% 40% 30% 20% 10% 0% All gz ho u G uan Source: HK TDC Survey S han gh ai Beij in g Dalia n Ch en gd u Counter at Dept Store Chain/Indep Store Store at Mall
Where to Shopping
Department store is the hottest place for shopping, chain/independent store follow suit
In Beijing, dept store is the overwhelming shopping place
Chain/Independent store is more preferable in Shanghai because there’re many famous local jewellery brands which have good reputation among consumers
In Guangzhou, dept store, chain/independent store and store at mall are evenly accepted by consumers
Reasons of Purchase
Reason of Purchasing Jewellery To Please Myself Good Design For Gifting Discount To Please Someone For Work For Wedding For Special Occasion To Relatives/Friends Wedding Investment No Special Reasons Source: HK TDC Survey Percentage 53.7% 37.2% 22.0% 16.5% 13.1% 8.1% 6.6% 5.5% 5.0% 4.6% 12.5%
Reasons of Purchase
People buying jewellery is mainly ‘To please oneself’
Good design is another reason attracting people to buy jewellery
Gift market is also important for jewellery
Impulse vs Planned Purchase
Impulse Purchase occupied two third in Purchase 80% 70% 60% 50% 40% 30% 20% 10% 0% A ll G ua ng zh ou Source: HK TDC Survey Sh an gh ai B ei jin g D al ia n C he ng du Impluse Planned
Buying Behaviour
Over 50% people buying jewellery is to please herself/himself, which is mainly for self-satisfaction. That is why people tend to impulse purchase
Impulse purchase is popular in Shanghai, then Beijing and Dalian
People in Guangzhou is comparatively more pragmatic, more planned purchase
Considerations for Purchase Jewellery
94% 92% 90% 88% 86% 84% 82% 80% 78% 76%
G oo d R ep G uta oo tio d C n ra fts m an sh ip
Source: HK TDC Survey
Pu R ri ea ty so R na ea bl so e Pr na ic bl e e La bo ur C os t Fi rm L is t Pr G oo d ic W e or d-o f-m ou th
Satisfaction on Current Jewellery Store
85% 80% 75% 70% 65% 60%
Sa le s O utl et
Source: HK TDC Survey
B ra nd C us to m er Se rv ic e Pr od uc t C ate go ry Va ri ety in D es ig n C ra fts m an sh ip
Consumers Expectation
Reputation, quality and price are the three most important areas when people consider buying jewellery
Consumer expectation in Shanghai and Dalian are the highest. Shanghai consumers request more trendy and fashionable designs.
In Beijing, people look more serious to word-of mouth, brand image and popularity.
Consumers Expectation
Most consumers satisfy with current jewellery stores in the areas of store, product, services and branding.
Respondents suggested areas to improve:
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More choice in fashionable and trendy design Craftsmanship could be further improved to international standard Warm and courtesy service; more professional advice; free maintenance
Consumers are still looking for better “Design and Craftsmanship”
Effective Advertising/Promotion
70% 60% 50% 40% 30% 20% 10% 0%
TV N ew sp ap er
Source: HK TDC Survey
D is co un t Ex hi Pr bi tio om n oti on C ou nte r C el eb R el ri ty ati ve s/ Fr ie nd s In te rn et
Advertising/Promotion
Undoubtedly, TV is the most effective vehicle. However, effectiveness of advertising/promotion are varied in different cities
In Beijing, instore promotion is the best vehicle after TV; Celebrity works the best in Guangzhou
Effective Communication Channel
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
D ep t Sto re /M al l
Source: HK TDC Survey
TV A d R el ati ve s/ Fr ie nd s N ew sp ap er N ew sp ap er Su pp le m en t
Effective Communication Channel
Nearly 40% respondents stated department store/mall is the best channel to get jewellery information
As a result, we could see both instore and above the-line are important for consumer communication
Summary and Insights
Summary & Insights
Jewellery market growth rate average at 8 10%. Expected to growth to RMB150 billion (Euro 16.9b) by 2010
Gold consumption is not making much headway has a lot to do with the regulations and close control by the government. The under-development of the domestic market, which still has broad prospects and is waiting to be tapped
Summary & Insights
Central policy is to liberalize the market
New management team from the PBC (from the governor to the directors of the Gold & Silver Administration dept) will only be interested to manage the central gold reserves. Liberalization of the gold market is high on the agenda.
China is still traditionally an important consumer nation for gold. But in the large and medium sized cities, gold is slowly being taken over by platinum and diamond-set jewellery.
Summary & Insights
Diamond market will dominate the future jewellery market and platinum overtaking 24-Karat gold as the new market "favourite“
We’ve also seen a trend of Karat gold penetrating well in the retail sector driven by the higher price of platinum and the good craftsmanship, varied designs and high profit margin of Karat gold.
Summary & Insights
CEPA advantage for medium to high end Italian products to market brand jewellery into China.