hktdc.com - Jewellery

Hong Kong's jewellery industry is dominated by the precious jewellery sector. Its development has been facilitated by the expansion of the local market, including sales to tourists. Combined with re-exports, Hong Kong is the leading exporter of imitation jewellery and the fourth largest exporter of precious jewellery in the world.
Jewellery production in Hong Kong encompasses a wide range of medium- to high-priced products. Hong Kong manufacturers are good at producing small stones fashion jewellery. Hong Kong is leading in the production of pure gold items, and has long been recognised as a major centre for the production of jade jewellery. It has also evolved into a leading trading and distribution centre for pearls in recent years.
Although high value-added processes are still retained in Hong Kong, manufacturing processes are increasingly shifted to the Chinese mainland, mainly to Shenzhen and Panyu, by means of building factories or outsourcing. Meanwhile, more manufacturers have made use of computer-aided design to shorten the time cycle for product development.
Under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), the mainland has given all products of Hong Kong origin, including jewellery, tariff-free treatment starting from 1 January 2006.

Industry Features*

-	Manufacturing (Sep 2008)
No. of Establishments	400
Employment	4,049

Note: * Industry statistics cover activities in Hong Kong only.

Hong Kong's jewellery industry can be broadly classified into two sectors: jewellery made of precious metal and imitation jewellery. In terms of value, more than 90% of Hong Kong's total exports of jewellery are made of precious metal.

Hong Kong's jewellery industry is known for its flexibility in accommodating customer needs. Production of fine jewellery encompasses a wide range of medium to high-priced products. The most popular product category is gem-set jewellery, particularly diamonds set in 14K or 18K and yellow/white gold. Hong Kong manufacturers are good at producing small stones jewellery with elements of contemporary fashion. Their gem-setting skills and design capability are competitive compared with world-class European manufacturers.

Hong Kong has a highly skilled and productive labour force capable of handling small orders and making elaborate designs at reasonable prices. The overall technology level of the precious jewellery industry is perceived by manufacturers to be above competitors like Thailand but below the world leaders such as Italy and Japan. Most notably, Hong Kong is leading in the production of gold items.

Hong Kong has long been recognised as a leading centre for the production of jade jewellery. Major items are bangles, rings and pendants. Hong Kong has also evolved into a leading trading and distribution centre for pearls in recent years, partly due to the fast emerging Chinese and South Sea pearl industry and the recent decline of the Tahitian pearl industry.

Although high value-added processes are still retained in Hong Kong, manufacturing processes are increasingly shifted to the Chinese mainland, mainly to Shenzhen and Panyu. With increased investment by Hong Kong manufacturers on the mainland and improved crafting skills of mainland workers, re-exports of jewellery from China have increased briskly in recent years.

Performance of Hong Kong's Jewellery Exports^

Precious Jewellery (SITC 897.3)	2006		2007		2008
Precious Jewellery (SITC 897.3)	HK$mn	Growth %	HK$mn	Growth %	HK$mn	Growth %
Domestic Exports	7,257	+12	8,581	+18	8,851	+3
Re-Exports	21,736	+15	25,250	+16	28,222	+12
Of Chinese Mainland Origin	17,086	+11	19,920	+17	19,789	-1
Total Exports	28,993	+14	33,831	+17	37,073	+10

Precious Jewellery by Market	2006		2007		2008
Precious Jewellery by Market	Share %	Growth %	Share %	Growth %	Share %	Growth %
USA	47.2	+7	44.5	+10	37.5	-8
EU	23.2	+15	23.6	+19	24.3	+13
United Kingdom	7.3	+11	7.7	+24	6.8	-3
France	5.1	+32	4.5	+5	5.3	+27
Italy	3.1	+48	3.4	+28	4.1	+33
Switzerland	4.7	+53	5.1	+27	7.5	+59
ASEAN	3.9	+4	4.5	+34	4.8	+18
UAE	2.3	+35	2.8	+39	4.0	+60
Japan	4.9	-3	4.1	-1	3.7	-2
Chinese Mainland	2.8	+47	2.7	+14	3.3	+30

Precious Jewellery by Category	2006		2007		2008
Precious Jewellery by Category	Share %	Growth %	Share %	Growth %	Share %	Growth %
Articles of Jewellery, of Precious Metal	96.7	+14	96.9	+17	96.4	+9
Articles of Pearls, Precious or Semi-precious Stones	3.0	+23	2.9	+13	3.4	+32
Goldsmiths' & Silversmiths' Wares, Precious Metal	0.3	-52	0.2	-8	0.2	-20

Imitation Jewellery (SITC 897.2)	2006		2007		2008
Imitation Jewellery (SITC 897.2)	HK$mn	Growth %	HK$mn	Growth %	HK$mn	Growth %
Domestic Exports	110	-12	112	+2	112	*
Re-Exports	7,718	+4	8,388	+9	8,400	*
Of Chinese Mainland Origin	7,310	+7	8,002	+10	8,028	*
Total Exports	7,828	+4	8,500	+9	8,513	*

Pearls, Gem-Stones and Rough Diamonds (SITC 667)	2006		2007		2008
Pearls, Gem-Stones and Rough Diamonds (SITC 667)	HK$mn	Growth %	HK$mn	Growth %	HK$mn	Growth %
Domestic Exports	348	-15	230	-34	213	-8
Re-Exports	47,654	+17	60,809	+28	83,983	+38
Of Chinese Mainland Origin	6,429	+17	5,646	-13	5,606	-1
Total Exports	48,002	+17	61,040	+27	84,196	+38

Note: ^ Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies. * Insignificant.

Hong Kong is the world's fourth largest exporter of fine jewellery after Italy, the US and India. Total exports have maintained strong momentum in recent years, posting increases of 14%, 17% and 10% in 2006, 2007 and 2008, respectively. Yet the growth in fine jewellery exports is largely reflecting the price surge of precious metals. In volume terms, total exports of fine jewellery saw declines in 2008.

The top three markets of Hong Kong's fine jewellery exports are the US, the EU and Switzerland, accounting for some 70% of the total. Sales to the US deteriorated significantly from rising 10% in 2007, to dropping 8% in 2008. Thanks to the strong euro during the period, exports to the EU maintained a strong growth of 19% in 2007, but moderated to 10% in 2008. Exports to Switzerland and UAE reported exceptionally high growth of 59% and 60%, respectively in 2008. The wealth effects from high oil prices in the previous years have evidently buoyed the import demand for precious items in the UAE, the trade and distribution centre in the Middle East. On the other hand, exports of pearls, gem-stones and rough diamonds surged 38% in 2008, compared to 27% in 2007. As diamond processing, cutting and polishing has been increasingly outsourced from India to the Chinese mainland, Hong Kong naturally becomes a trading platform and witnesses strong growth of diamond trades. However, given the gloomy economic prospects, sales of luxury items are not expected to wane.

Hong Kong is the world's largest exporter of imitation jewellery. In 2008, total exports of imitation jewellery amounted to HK$8.5 billion. Unlike fine jewellery, imitation jewellery is rarely domestic-made but re-exported from origins outside Hong Kong, notably the Chinese mainland, which accounts for some 95% of all exports from Hong Kong. After a mild increase of 9% in 2007, exports of imitation jewellery reported no change in 2008.

Hong Kong's jewellery exporters are facing intensifying competition from suppliers in the Chinese mainland and other countries, particularly India and Thailand. This, together with the price increases of precious metals, diamonds, precious stones and materials, has somewhat trimmed down their profit margins, although compared with other industries, jewellery makers are in a better position to pass cost increases onto buyers and end users if caused by price surges of precious materials, which make up the most part of a jewellery article's value. On the other hand, US retailers and importers now take additional inventory by consignment, and they press Hong Kong suppliers for extended credits, exchange for unsold items, shorter delivery lead time and better designs.

The impact of the RMB's appreciation is expected to be rather modest compared with other industries because mainland content only accounts for a relatively small part of a jewellery article's value, compared with costs of precious materials, which are primarily imported into the mainland for export processing. On the other hand, Chinese government's policy on encouraging consumption will shore up the purchasing power and import appetite of Chinese residents, and this may somewhat facilitate the sales of jewellery articles to the mainland, as well as retail sales in Hong Kong contributed by Chinese visitors.

Sales Channels

The jewellery industry of Hong Kong is by and large export-oriented. The trade is characterised by a subcontracting system under which small- and medium-sized factories provide subcontracting services, such as mould making, precision casting, gem-setting, polishing and electroplating, to larger manufacturers or local jewellery retailers. Mass production of jewellery products is normally restricted to established manufacturers which are equipped with more sophisticated and automated production machines. The jewellery items made for exports usually bear buyers' brand names or logos. Some jewellery makers have set up overseas offices and outlets to promote sales. Online display is another growing trend.

Some Hong Kong manufacturers are making inroads into retail and distribution in Hong Kong, helped by the flourishing tourist industry. According to Hong Kong Tourism Board's survey, in 2007, vacation overnight visitors' spending on jewellery accounted for 19% of their total spending on shopping; as for those from the Chinese mainland, the share was higher at 20%.

A few Hong Kong jewellers have expanded their retail network to the Chinese mainland through franchising and cooperative arrangement. They have successfully earned a recognised brand image there. A recent survey conducted by the HKTDC showed that, when buying low-to-medium and medium-to-high-end brands, Hong Kong brands were the top choice, compared with local and foreign brands, of mainland consumers. The survey also discovered that Hong Kong brands have a premium of 35.9% over their domestic counterparts.

Promotion via participation in trade fairs is an effective way for Hong Kong companies to explore export opportunities (below is a list of selected trade fairs in the industry). Besides, HKTDC from time to time organises study missions for Hong Kong manufacturers to visit specific markets for establishing new business relations.

Country/Region	Major Events
Hong Kong	Hong Kong International Jewellery Show in March
Chinese Mainland	Shenzhen International Jewellery Fair in September
US	The JCK Show in Las Vegas in May/June
Europe	Vincenza Fair in Italy in January/May/September BASELWORLD in Switzerland in March/April

Industry Trends

Articles of jewellery are getting more fashion oriented. Innovative designs are important for moving up-market. In doing so, it is necessary for manufacturers to have more metallurgical knowledge. New technology also allows the development of new or innovative designs. Jewellery, which used to target the high-end market, is also following more closely with the fashion trend and targeting at the younger, middle income level market segment, some in the form of brand jewellery.

Recent technological development allows massive production of jewellery products with good quality and competitive prices. While Hong Kong's jewellery industry remains basically a handicraft industry, a number of larger establishments have made use of sophisticated and automated production equipment. These manufacturers integrate advanced production techniques, such as electroforming, with handicraft skills to enhance their efficiency. They install computer-aided design and manufacturing (CAD/CAM) systems, as well as computer numerically controlled (CNC) machine tools in their product design and manufacturing processes. New technologies also enable Hong Kong manufacturers to develop new materials for fashionable jewellery items other than fixing defects and to increase the accuracy of the designed output.

Like other industries, the trend of consolidation also happens in the jewellery industry, especially in the US. According to the Jewellers Board of Trade of the US, the 1990s saw a decline of 21% in the number of jewellery manufacturers and a 6% decline in that of retailers in the US. Meanwhile, the business of smaller US retailers has steadily declined as they struggle to compete against mass merchants such as Wal-mart, Target and Costco, which have successfully captured a bigger share of consumer spending. Wal-mart, for example, has risen to be the leading jewellery retailer in terms of sales turnover in the US. A recent survey by Research and Markets Ltd also reported that 20% of fine jewellery shoppers in the US made their purchases at these outlets. Mass merchants usually have stronger bargaining power than their suppliers; Hong Kong exporters are expected to face downward pressure on their ex factory prices and provide more value-added services to win buyers' orders.

On marketing and distribution, some Hong Kong jewellers have built up their own branded jewellery or licensing agreements. While this is an effective strategy to enhance long-term competitiveness, it may also require local jewellery manufacturers to move into distribution. Apart from establishing direct retail outlets, the rapid development of online shopping in recent years is also noteworthy. It is expected that the application of e-commerce in the jewellery sector will continue to proliferate. Over the longer term, the development of internet shopping represents a new direct sales method for Hong Kong jewellers in promoting their products.

CEPA Provisions

Under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), the mainland has given all products of Hong Kong origin, including jewellery, tariff-free treatment starting from 1 January 2006. According to the stipulated procedures, products which have no existing CEPA rules of origin can enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met. Non-Hong Kong made jewellery products remain subject to tariff rates of as high as 35% when entering the mainland.

The promulgated rules of origin for jewellery to benefit from CEPA's tariff preference are basically similar to the existing rules governing Hong Kong's exports of these products. Generally speaking, for jewellery articles of precious metal, moulding, identified as the principal process for the purpose of delineating their origin, is required to be carried out in Hong Kong. If assembling is required, it must also be done in Hong Kong. For jewellery articles of pearls, precious or semi-precious stones, both moulding and setting have to be done in Hong Kong. Detailed information is available from the following hyperlink:
http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2009.pdf

General Trade Measures Affecting Jewellery Exports

In China, all gold trading at the wholesale level for producers and wholesalers now takes place in the Shanghai Gold Exchange, introducing market prices to the transactions. A further step of liberalisation is to remove the approval requirements of China's central bank on the purchase of gold and on the production, distribution and retailing of gold products from April 2003. As regards the processing trade of gold, the approval requirements of China's central bank have been lifted since the end of 2003.

Effective from May 2005, the value added tax (VAT) on exports of jewellery articles of gold and precious materials under general trade is exempted, but the VAT on the import content of such trade, collected when imported into China, is not rebated. Starting from 1 July 2007, for certain pearl, precious stones and precious metal, the rebate rate was reduced from 13% to 5%.

Diamond (including rough diamond and unset polished diamond) imports and exports under general trade are required to go through the declaration formalities with the customs located inside the Shanghai Diamond Exchange (SDE). Diamonds directly entering SDE from overseas are exempted from import duty, value-added tax and consumption tax. All diamonds traded in SDE are exempted from value-added tax. Diamonds entering SDE from domestic sources can enjoy tax refund, and the tax collected at the processing stage shall be fully refunded when diamonds are exported, while those flowing from SDE to overseas cannot enjoy tax refund. For diamonds channeled from SDE to the domestic market, no import duty is required but the value-added tax (4% for polished diamonds but none for rough diamonds) shall be duly paid. The consumption tax is not collected until the stage of retailing, at a rate of 5%.

In response to the concern that diamonds from a few African sources might have been sold through illegal channels to finance civil wars and conflicts among neighbouring countries, the World Diamond Council (WDC), with some participating countries, have come up with a certification scheme to keep track of the rough diamonds exported from the African conflict areas (the so-called Kimberley Process). Both Hong Kong and China, as signatories to the Kimberley Process, has introduced this certification scheme since 2003. Accordingly, all parties in Hong Kong carrying on a business of importing, exporting, carrying (including carrying rough diamonds in transit and transhipment), buying or selling rough diamonds must now be registered with the Trade and Industry Department (TID). They are also required to obtain Kimberley Process (KP) Certificates issued by TID before the import and export of rough diamonds.

In July 2008, the US extended the economic sanctions against Burma (Myanmar), which include a prohibition on virtually all imports from that country. Separately, effective from September 2008, imports of rubies and jadeite mined or extracted in Burma as well as articles of jewellery containing such gems into the US are banned. This ban is noteworthy for Hong Kong and mainland jewellery exporters because it applies to jewellery from any location that contains Burmese rubies and/or jadeite. In addition, exporters of rubies, jadeite and jewellery thereof from non-Burmese sources are required to implement measures to prevent trade in Burmese covered articles.

In the EU, environmental and health concerns continue to be major issues. The EU has banned the imports of jewellery containing nickel, which can cause allergic reactions when in contact with skin. While this measure provides Hong Kong jewellery products made of other materials a niche in exporting to the EU, other suppliers have started to catch up as they adjust to the requirement. In addition, imitation jewellery containing lead is also under strict regulations under the US Consumer Product Safety Commission.

Other than the above official regulations, various organisations are issuing qualifications to various jewellery materials. They include the World Gold Council, the Natural Colour Diamond Association (NCDIA), and the Diamond Training Company (DTC). For example, Tanzanite Foundation has developed a grading system for tanzanite. Gaining their qualification is an increasing trend, and their measures are expected to be a standard in the future.

Product Trends

In terms of materials, white metal will remain the mainstream, while there has been a renewed interest and demand for colour stone jewellery. Demand for yellow gold is on a rise again, albeit with a fashionable twist. Titanium is gaining popularity for its light weight, strong nature and non-sensitivity to human body. Meanwhile, some buyers have traded down their merchandise amid a sluggish global economy. Lower-priced items with more creative use of karat gold and alloys may also become more popular with less affluent customers.

The number of younger consumers has increased over the past few years. They are fashion-conscious and putting a great stress on the design element. In many cases, they are influenced by the trends in clothing fashion, mainly through magazines, TVs or movies. In Asia, for example, the biggest jewellery buyers are the rising numbers of women entering the workforce, according to De Beers.

In terms of product trends, jewellery designs have been increasingly influenced by clothing fashion. Consumers, especially women, are opting for more accessories like jewellery to express their sense of style. While feminine, romantic pieces are expected to be sought-after in the luxury market, wear ability is getting important in the young girl market, and this reflects in the increasing trend to wear jewellery with jeans in a mix-and-match fashion.

Demand for male jewellery is on a rise, as men are becoming more fashion-conscious. The concept that "jewellery is feminine" is fading. Men have realized that jewellery can be masculine. They begin to understand that fine jewellery is essential to a complete look, and jewellery is becoming an integrated part of men's dressing. They may buy bracelets, rings and pendant necklaces to suit their looks. They may also wear jewellery such as cufflinks and tiepins to build up a smart look. Yet, articles of men jewellery are still quite limited, and thus the market may be of huge potential.

Costume jewellery is making a sparkling return. Increasingly, more garment boutiques offer jewellery as accessories complementing their new lines of fashion. Such development would contribute to an increased demand for elegant and romantic diamonds, which are expected to top the list of jewellery buyers, while semi-precious stones and coloured crystals targeting at the medium to lower-end segment are likely to sell well.

Hong Kong Industry Profiles