RAPAPORT... Amid the global financial tsunami, China is striving for an economic soft landing in 2009, and for a renewal of the growth cycle that has taken the country through five years of double-digit economic growth. The central government, pledged to focus more on the quality than the speed of growth, has adopted a $586 billion economic package that includes a number of measures designed to stimulate domestic demand and infrastructure spending. Experts pointed out that increasing domestic consumption, especially in the largely untapped rural market, would be a long-term emphasis.
It is believed that China’s economy may need two to three years to adjust to the effects of the long fast-growth cycle and that the economy could achieve an 8 percent growth rate in 2009. That projection is based on the financial and tax stimulus plans recently adopted and the fact that the country’s financial and banking systems and the renminbi currency remain stable. In more positive news for the economy, on December 15, 2008, Mainland China and Taiwan initiated direct links -- including direct air and sea transportation and postal services -- after 59 years of limited and indirect access.
Faith and Unity
In a recent interview with RDR, Lin Qiang, president of the Shanghai Diamond Exchange (SDE), called for “faith and unity” by the Chinese diamond industry. “From 1979 to 2007, China’s economy maintained an average annual growth rate of 9.8 percent. 2008 was an unusual year for the entire world and also for China,” admitted Lin. “Diamond imports through SDE during the first three quarters of 2008 increased by more than 40 percent year on year.
In the fourth quarter, we saw some decline -- by approximately 10 percent year-on-year -- but it was not as severe as other major diamond markets in the world. Overall, I believe the Chinese diamond market is healthy and demand for diamonds is still relatively stable. China’s diamond industry must have faith and unity and get through this difficult time by working together.”
Lin noted that “the government is working on stimulating domestic demand” and said he believes that it “will have a positive effect on the diamond and jewelry market in 2009.” Also underlying Lin’s optimism is the government’s favorable tax policy of 0 percent import tax and 4 percent value-added tax (VAT) on diamond importing, which already has benefited the Shanghai diamond industry.
Adding to that is the new 14-story, 540,000-square-foot China Diamond Exchange Center, which will be ready for occupancy in early 2009. “The new facility and improved service,” Lin said, “will provide an elevated platform for diamond importing and trading in China.”
Market Situation
According to the National Bureau of Statistics of China, total retail sales of consumer goods in November 2008 reached 979.08 billion yuan -- $143.24 billion -- a year-on-year increase of 20.8 percent. The new retail sales season began in early December and the Nanjing Road Shopping Promenade in the center of Shanghai, also called “No.1 Commercial Street in China,” was full of shoppers. But local consumers have become savvier shoppers, so the sales outlets offering generous discounts and cost-effective commodities were sometimes flooded, while those still charging high prices had few patrons.
Retail stores in big cities placed more emphasis on the Christmas concept this year, hoping to provide an additional, earlier sales peak before the upcoming Chinese New Year starting on January 25. The next sales push will be for Valentine’s Day.
In the diamond section, most wholesalers didn’t see the concentrated orders of previous years and buyers still have some degree of hesitation, but the market has improved significantly, especially for diamonds under 1 carat. Apart from the mainstream VS and VVS goods, buyers are also purchasing more SI goods in order to satisfy clients with lower budgets. Many trade members believe that some wholesalers and retailers who cannot compete in the new tougher market will unavoidably vanish in 2009, but the strong ones will survive and take the market shares of those who have left the industry.
Wong Ning, general manager of Cheung Ning Diamond, a member of the SDE, told RDR that “The wholesale business was slow in the first half of November 2008, but it improved a lot in the second half of November after we adjusted our prices to reflect the current market situation. The retailers are hoping for a good upcoming sales season.” Wong, who was also among several Chinese citizens rescued in the recent terrorist attack in Mumbai, traveled there again shortly after the attack. “I have faith in the diamond business in China,” he said, “ and the Mumbai attack won’t stop me from visiting India again.”
The Marketplace• The wholesale market has improved due to the upcoming Chinese New Year sales season.
• Most in demand are rounds in 0.15- to 0.69-carat G+, VS and in 0.15- to 0.69-carat I-J, VVS.
• The demand for SI goods has increased for low-budget items.
Article from the Rapaport Magazine - January 2009. To subscribe click here.