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CHINESE MARKET WILL CONTINUE GROWING STRONGLY BUT WILL BE FOREVER CHANGED BY COVID-19

 

With the lockdown largely ended, China’s market is a quickly ramping up, wrote Lian Qiang, President of the Shanghai Diamond Exchange (SDE), in a blog published by the World Diamond Council (WDC) and could even beginning growing before the end current calendar year. But, he noted, the COVID-19 pandemic impacted in unprecedented ways on China’s jewelry retail markets and their supply chains, making it likely that the industry will be forever changed.

“One thing is clear, we are not going to jump straight back to normal – or at least what we earlier defined as normal.,” Lin Qiang wrote. “Thus far, we have we seen very limited goods and traders arriving in Shanghai from India since the outbreak of pandemic. Indeed, given that the development of an effective vaccine is still a long way off, it is reasonable to assume that our supply chain, not to mention international travel, will be affected for a long time yet.”

Brick and mortar jewelry retailers, many of whom are burdened by high rent and labor costs, have found the going particularly tough, he notes. “Usually sales in December, January and February, which include the Spring Festival, represent almost 50 percent of annual store revenue, and even in the best scenario consumption may recover to near normal levels only in June. This means that retailers will come under real financial strain for at least six months,” he stated.

What is likely to result is a consolidation of the retail market, with companies with sound financial status and reputation likely to earn more market share. “This is an evolutionary process, which does not simply mean the big fish eat the small fish,” Qiang wrote. “It is more about the survival of the fittest, where the winners are those who can adapt to market change and dare to self-reform.”

Currently, the top 10 jewelry brands in mainland China only account for 30 percent of market share.

EXPANSION OF THE JEWELRY MARKET’S DIGITAL PRESENCE

One of the most significant changes has been the expansion of diamond jewelry companies’ digital presence, the SDE president wrote. In his WDC, he blog he provided as an example Zhou Liu Fu, a major retailer, who has reported that its online business has achieved 30 percent growth during the pandemic, and it was planning to mobilize more stores to try live video shopping.

As it so happens China is already a country where online trade has made considerable headway, with consumers increasingly comfortable doing business via their computers or cell phones. According to research by CCS Insight, Qiang noted, China will have an online retail market worth $1.8 trillion by 2022 and will comprise 40 percent of global 5G connections by 2025.

“This lasting crisis reminds us that we must be ready to adapt and adjust during times of unexpected impacts,” he wrote. “What we learn during this challenging period will be vital to the future prosperity of our industry.”

 

PROSPECTS GOOD FOR RETURN TO RAPID GROWTH

While 2020 will certainly not be the year that many had hoped for, Qiang wrote, indications following the end of lockdown suggest that the reduction in sales may not be as high as many had feared.

The building of the Shanghai Diamond Exchange. (Photo courtesy World Diamond Council)

Source: Shanghai Diamond Exchange. (Table courtesy World Diamond Council)

Ultimately, he stated in the WDC blog, “the key element that will determine the fate of the Chinese diamond market is the fundamental state of the country’s economy, whose growth this decade is being driven largely by consumption.”

“If over the coming 10 years the Chinese economy is able to maintain a medium to high average growth rate of 5 to 6 percent, the diamond market will likely expand for another decade,” the SDE president noted. “IN fact, given government’s stimulus policies, some economists are estimating that China’s GDP may actually grow by 3 to 4 percent in 2020. 

This would put us on track to return to a more normal growth in 2021.”

A large proportion of the expected momentum in the diamond market will come from China’s vast third and fourth tier cities, which already account for 70 percent of the total population, although THEY only contribute some 43 percent to diamond consumption by value.

“Their potential is considerable, especially if one considers that they lag far behind the first and second tier cities, both in terms of market penetration and the purchase rate,” Qiang stated. “But, thanks to the spread of digital commerce and mobile applications, as well as the expansion into the third and fourth tier cities of leading jewelry retail chains, consumers are getting more opportunities to come into contact with brands and merchandise.”

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