Latest News

China’s Recovery Is a Long Way Off

December 22, 2022  |  Joshua Freedman
Man in mask in Shanghai China May 10 2022 during omicron lockdown credit Shutterstock 1280

Empty stores and a challenging economy indicate a slow New Year season ahead. But things should be better by March, dealers predict.

On December 7, the Chinese government announced it was loosening its long-running “zero-Covid” policy. Immediately, the diamond industry began to anticipate a rebound in sales to the important market. The chain of lockdowns had dented global demand for many months, especially in the 0.30- to 1-carat items popular on the mainland.

The reality has turned out differently, for now. Coronavirus cases have reportedly surged. On December 17, the chief epidemiology expert at the Chinese Center for Disease Control and Prevention told a conference in Beijing that the country faced three Covid-19 waves this winter. Schools in Shanghai moved online amid a rise in infections.

“We expected China to open up within the next couple of weeks,” says Ephraim Zion, founder of Hong Kong-based Dehres, a supplier of high-end diamonds, gemstones and jewelry. “But I don’t think it’s going to happen, because the rate of outbreak of infections over there is so serious and so widespread that it really put a damper on this whole thing.”

Demand is almost nonexistent, adds Zion, whose business is mainly large stones. “Here and there, if there is an engagement, then they still do buy,” he notes. “But otherwise, for other purposes, to buy bigger things — 2 to 10 carats — there’s almost no activity.”

Malls quiet

Commentators say the government wants as much of the population as possible to catch the virus and gain protection so the country can move on. In the short term, this has left many either scared to attend gatherings or stuck at home sick, says Chen Shen, president of Shanghai-based gemstone dealership and consultancy firm Skywalk Global.

“People aren’t going to the office, and all the shopping malls are empty,” Shen tells Rapaport News. “This is probably [going to go] on until Chinese New Year [on January 22].”

Consumers are not just unwilling to go to shops — the basic demand is not there either, he adds. “Everyone is consumed by the Covid-19 [situation],” Shen explains. “Buying a gift is something special. I don’t think that’s on people’s minds.”

Where people are buying, the demand tends to be for gold jewelry and smaller, lower-priced diamonds, according to industry analyst Julius Zheng, who is also based in Shanghai and is the owner of Polaris Jewelry & Service Company.

“Diamond jewelry will be flat for a [while] before it goes up again,” Zheng predicts. “But in the long run, the situation will get better. In the next few months, it will be a little bit chaotic.”

Rishi Mundra, managing director of Hong Kong diamond manufacturer and trader Stellar Group HK, also anticipates a focus on lower price points during the coming New Year period. At the JMA Hong Kong International Jewelry Show in November, organized by the Hong Kong Jewelry Manufacturers’ Association, “the majority of the items that were being sold were priced between $400 [and] $1,000,” Mundra observes.

“We see that also in China, simply because…lower-ticket items are more affordable for the common consumer,” he says. This has fueled demand for melee diamonds with SI1 clarity and lower, he says.

Impact on manufacturers

Orders from China are significantly below pre-pandemic levels, says Vipul Sutariya, director of sales and marketing at Indian polished manufacturer Dharmanandan Diamonds, a major supplier of diamonds to the mainland. Demand has picked up a little in December, but this is an inevitable effect of the lunar festival being around the corner.

Diamonds weighing 0.30 carats and larger in VS clarity are the primary focus within the limited demand, Sutariya says. Perhaps counterintuitively, the higher colors — D to G — are outperforming lower grades because recent polished-price reductions have prompted retailers to seek the better item for their money, he explains.

Meanwhile, production in the Indian diamond-manufacturing city of Surat, which has been low for months, has continued at those depressed levels as cutting firms wait to see how the situation develops, Sutariya adds.

Low sentiment

The weak Chinese economy and lack of disposable income means there isn’t as much pent-up demand as the trade might hope, cautions Mundra at Stellar Group.

“I don’t think people are going to go out and spend excessive money on luxury items like jewelry and diamonds,” Mundra says. “But if we’re able to have similar [Chinese New Year] sales to last year, then at least it’ll be a building platform for the rest of the year.”

Dehres’s Zion is more confident. “If…the rate of outbreak is going to be controlled, it’s not going to take a long time until we see the [positive] effects,” the dealer forecasts. “I think [there’s] going to be good business, because [consumers] haven’t bought things for a long time. And I believe that once the situation stabilizes in terms of Covid-19, things will get better.”

On the plus side, the Chinese government is concentrating on supporting the economy for the coming year, says Shen at Skywalk. The very timing of the Covid-19 policy change is consistent with that, he theorizes: The impact of the anticipated factory closures and worker absences — as more people catch the virus — will be minimal because it’s the festival season anyway.

First-quarter predictions

Dealers are optimistic the market will improve before the Hong Kong Trade Development Council (HKTDC) jewelry shows, which run from March 1 to 5, 2023, at the Hong Kong Convention and Exhibition Centre in the Wan Chai district. Enough people will have achieved immunity by then that the mainland should be on a recovery path, they explain.

An important factor is the China-Hong Kong border, which remains restricted. A full reopening would enable people to visit the municipality and return to the mainland without quarantine requirements. News reports say this could happen in January. Hong Kong has relaxed most of its containment rules, so eyes are on Beijing to make the next move.

In the short term, the upcoming Chinese New Year will likely see either flat jewelry sales or a decline compared with 2022, according to most estimates. “A lot of people…will be hiding at home during the holidays,” says Vincent Yiu, director of Hong Kong’s Brilliant Trading Company, a diamond wholesaler. He expects the season will be weaker than a year earlier.

“I’ve looked at those shopping malls, all the Christmas decorations,” comments Shen. “Well, what a waste of money.”

Image: A scene in Shanghai, China, during the city’s May 2022 lockdown. (Shutterstock)


Man in mask in Shanghai China May 10 2022 during omicron lockdown credit Shutterstock 1280 China’s Recovery Is a Long Way Off

Share with others


Clear all search filters