Jewellery Distribution Network in China
The mechanism of raw material supply and finished products circulation can be summarized as follows: Enterprises smelting precious metals and diamond trading companies sell raw materials like gold and diamond through exchange platforms (for instance Shanghai Gold Exchange and Shanghai Diamond Exchange) to jewellery enterprises (SGE/SDE members or units doing self-processing).
Then these jewellery enterprises can do the following:
- Wholesale trading of these raw materials to other non-SGE/SDE retail enterprises, who then sell it to ultimate consumers through their own retail shops.
- Sell it directly to the ultimate consumers through their own retail shops.
- Supply these as raw material to other non-SGE/SDE member retail enterprises who then distribute these to other non-SGE/SDE members or sell it directly to consumers through their own retail network. Sometimes these units entrust some SGE/SDE members to buy jewellery/raw materials in the exchanges on their behalf. The non-members can also supply the raw material thus acquired to the producing and processing firms.
- Supply these raw materials directly to the producing and processing firms, assigning them to produce jewellery of particular design. After production part is complete, the processing firms return them to the jewellery enterprises for marketing, or they themselves do wholesale marketing to non-member retail enterprises, who sell it to the ultimate consumers.
The major jewellery enterprises are often members of SGE/SDE, buying raw material in the two exchanges based in Shanghai. Then they either produce jewellery themselves or, in majority of the cases, entrust some processing enterprises to produce their chosen designs. Thereafter they utilize their own retailing networks to sell the product to ultimate consumers. Jewellery enterprises with substantial turnover volume, who are, however, not members of SGE/SDE, usually entrust member enterprises to buy raw material for them in the exchanges, and thereafter, either produce jewellery themselves or, in most cases, employ some processing firms to do so. Then they use their own retail network to sell the product to consumers. Other non-member retail enterprises can buy jewellery products through three channels:
- Buy in bulk from member enterprises and then sell through own retail shops
- Directly buy in bulk from the producing and processing firms and then sell through own retail shops
- Buy in bulk from non-member enterprises and then sell through own retail shops
These enterprises are usually small retailers and their retail networks are usually found in the second-and third level cities, townships and even villages. They mainly buy from members and using the member’s brand image, make profits by selling in the small areas, where the network is not very well-established. Some of them also buy relatively cheaply in bulk from the processing firms and then reap a mark-up profit by selling in small places. While selling, they can also use their own brands. However, the third channel mentioned above is very rare.
Within a few years’ time, China’s jewellery market has developed to occupy 20% of the global market, with sales volume next only to the US and Japan. The following table gives an indication of the speed of development:
Sales volume: (Source: China Gemmological Association)
- 1998 = RMB 76.2 billion
- 1999 = RMB 80.6 billion
- 2000 = RMB 88.0 billion
- 2001 = RMB 96.5 billion
- 2002 = RMB 10.53 billion
The main sales volume indicators in the year 2002 are as under:
Category 2001 2002 % Change over 2001
- Gold jewellery (ton) 213.7 202.5 -5.24
- Platinum jewellery (million ounce) 1.3 1.48 +13.85
- Silver jewellery (ton) 230 250 +8.07
- Diamond jewellery (RMB billion) 14.6 17.6 +20.55
- Pearl jewellery (RMB billion) 5.2 6 +15.38
- Imitation jewellery (RMB billion) 2 2.5 +25
(Source: China Gemmological Association)
In some of the major categories of jewellery products, China ranks among the top players. In terms of consumption of gold jewellery, China is the world number three, while it is number one in platinum jewellery consumption, accounting for over 50% of the world consumption of platinum used in jewellery. Diamond, red and blue gemstone consumption is also rising at the rate of 30-40% per annum. A list of top jewellery retailers in China is given at section C of Resources of this book.
In 2002, in line with market access principles of China’s WTO entry, China first revoked the approval system in the retail trade of gold jewellery, changing to a system of registration, and followed it up by formal operationalization of Shanghai Gold Exchange, thereby putting an end to the long history of planned economy where gold was an item of monopoly purchase and allotment by the state.
Second, functioning of SDE in June 2002 facilitated a fall in taxes and tariffs on import of diamond, including import tariffs, VAT and consumption tax. After readjustment, tax fell from 33.9% to about 17%. This, while promoting import, discouraged smuggling and opened up possibilities for export of diamond products.
Other liberalization measures include changes in the government’s diamond classification system. The old grading system described flawed diamonds as ‘deformed’-thereby deterring many potential buyers, who could not afford the small quantity of diamonds that are perfectly flawless. Now, the less-than-perfect gems will carry a rather less loaded and more acceptable ‘P-grade’ classification. Opening-up of the gold market brought the two closed markets of gold and gold jewellery together.
After China’s reforms and opening-up, it was in 1987 that the common people first demonstrated a pent-up demand for jewellery, which, however, was only for solid metal gold jewellery. By 1993, solid gold jewellery could no longer meet the increasing demand for diversified products from the noveau rich, who turned overseas for purchasing inlaid jewellery. This laid the basis for the development of inlaid jewellery in China. From 1996 onwards, platinum and diamond-inlaid silver jewellery gradually gained currency and within a short span of time, captured the main markets in China’s top- and middle-level cities and met the requirement of different classes of consumers. In recent years, diversification of the jewellery market has progressed further, with special, new and superior products appearing every day. Pure gold jewellery, Inlaid jewellery, platinum jewellery, ruby, pearl, jade, crystal, agate etc. all have a market in China.
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