Sluggish But Hopeful

China has grown massively within a very short span of time from being almost absent a decade ago to being considered as the most important market after United States at present. However, currently it is going through a rough phase. Kunjal Karaniya brings you highlights.

Jewellery demand in China has continued a fast rapidity of growth in past years. According to National Bureau of Statistics figures, in 2003-2008, the average annual increase in retail sales of wholesale and retail enterprises over a chosen scale was as high as 30.4 per cent. As a result of a hold back in the macro economy, growth has dampened in recent years. In 2012, growth in retail sales of jewellery was 16 per cent, whereas in April 2013, a drop in gold prices encouraged people to buy more gold which caused retail sales of jewellery to reach Rmb30.3 billion, signifying a year-on-year growth of 72.2 per cent. As a result in 2013, annual jewellery sales reflected a rise of 25.8 per cent. Partially cause of the speedy growth in 2013, jewellery retail sales of enterprises over a chosen scale in 2014 accrued to Rmb297.3 billion, as good as the preceding year.

According to IBIS, as household income rose and living standards improved, jewellery purchases have increased rapidly in China. For China's most popular jewellery category - gold jewellery, consumption volumes in China increased from 224.1 tons in 2004 to 886.1 tons in 2014, representing annualised growth of 14.7 per cent for that period. In the five years through 2015, total revenue for the jewellery store industry in China has been growing at an annualised rate of 14.5 per cent to $90.3 billion. China has become the largest consumer of gemstone, jade, platinum and gold jewellery in the world, and the second-largest consumer of diamond jewellery after the United States.

Jewellery sales in China are mainly based in large cities and provinces with strong economic strength. The top five jewellery retailing regions, Beijing, Shanghai, Guangdong province, Jiangsu province and Zhejiang province, jointly account for about half of China's jewellery sales in 2015. Beijing is the largest jewellery market in China, and jewellery sales were greatly promoted by the 2008 Beijing Olympic Games and increasing population. As the purchasing power of Beijing consumers grows, sales of large and expensive diamond jewellery are expected to rise rapidly in the future. With consumers aged 18 to 29, the main drivers of the bridal and gifting sectors, the bridal business and the gifting business is the main growth area.

CURRENT SITUATION:

However currently, China is heading for its slowest economic growth since 1990 as jewellery price levels fluctuated greatly in recent years due to strong dollar trend and decreasing demand of luxury goods. China and India were in the spotlight for global diamond industry in a chaotic 2015, between dampened global retail sales, decreasing revenue of diamond producers, and edgy stress faced by diamond polishers.

Unfortunately latest news related to China and diamonds has been awful, for two reasons:
• The Chinese government is in course of a huge anti-corruption-campaign, which has a massive consequence on the trade of large and fancy-colour diamonds, and thus the demand has already slipped.

• The Chinese economy is in catastrophe, thus affecting the Chinese demand for diamonds.

A current report by MasterCard shows that the main buyers of luxury goods in China are millennia’s -18 to 29 years old, spending an average of $4,362.00 on luxury goods, which is about double the amount spent all over the rest of Asia Pacific. Diamond engagement rings account for 17 per cent of their luxury purchases.

According to a recent report by Minning.com, weaning demand for diamonds in China, the second largest consumer of precious gems after the U.S., has dragged the seemingly immune-to-the-commodities-rout sector down the slippery slope.

According to Zimnisky Global Rough Diamond Price Index, prices for the precious rocks have fallen almost 12 per cent in the past year, squeezing producers’ profits. Conditions deteriorated sharply when diamond prices took a steep dive. The carnage deepened troubles in the sector, as dealers had already began facing difficulties to sell their existing inventory into softening markets, while also facing tougher financing conditions.

At the same time, De Beers, has been increasing spending on marketing in China. The goal, says the company, is to prop up growth and attract new consumers, targeting women between the ages of 18 and 29, and buyers in third- and fourth-tier cities. “De Beers is saying it’s business as usual; it’s not,” said Guy Harari, co-founder of rough-diamond trading platform Bluedax to Bloomberg. “The market is much weaker than what De Beers tries to show the world.”

According to a recent report by Minning.com, weaning demand for diamonds in China, the second largest consumer of precious gems after the U.S., has dragged the seemingly immune-to-the-commodities-rout sector down the slippery slope. According to Zimnisky Global Rough Diamond Price Index, prices for the precious rocks have fallen almost 12 per cent in the past year, squeezing producers’ profits. Conditions deteriorated sharply when diamond prices took a steep dive. The carnage deepened troubles in the sector, as dealers had already began facing difficulties to sell their existing inventory into softening markets, while also facing tougher financing conditions. At the same time, De Beers, has been increasing spending on marketing in China. The goal, says the company, is to prop up growth and attract new consumers, targeting women between the ages of 18 and 29, and buyers in third- and fourth-tier cities. “De Beers is saying it’s business as usual; it’s not,” said Guy Harari, co-founder of rough-diamond trading platform Bluedax to Bloomberg. “The market is much weaker than what De Beers tries to show the world.”

De Beers agrees and anticipates an improvement by 2017 at the latest. In the meantime, the company has cut production twice this year by as much as 15 per cent, and lowered prices at its sales, known as sights. Russia's Alrosa, is even more optimistic. CEO, Andrey Zharkov told Rapaport that his company expects rough diamond prices to stabilize by the end of the year.

EFFECT ON INDIA:

A recent report by PTI highlighted the effect of Chinese turmoil on India. "We are feeling the pinch of slowdown in Chinese demand for diamond jewellery. Our market share in China has come down by 40 per cent due economic slowdown," Gem and Jewellery Export Promotion Council (GJEPC) chairman Vipul Shah said. India exports mostly polished diamond jewellery to China. "Things have not been great since April as demand has been continuously falling not only in China but other markets as well due to strengthening of the dollar against other currencies," he said.

Falling demand in China and other markets like Middle East due to weak economy has forced domestic traders to cut down production and jobs, he added. "Right now, there is over dependence on the US market. We are pushing exports to the US markets. All other markets are also difficult right now because world economy is disturbed. Most currencies are trading down as compared to the US dollar," he said.

As per the GJEPC data, India's export of cut and polished diamonds dropped by 13 per cent to Rs 9,625.57 crore in July 2015, as against Rs 11,126.02 crore in the year-ago. In volume terms, the shipments of cut and polished diamonds fell to 27.97 lakh carats from 32.62 lakh carats in the said period.