Making luxury more affordable in China

Avi Krawitz

Diamond dealers still see China as the engine of industry growth but Premier Xi Jinping’s government can do more to encourage its development. As the country transitions to a consumer-driven economy, luxury products such as jewelry are considered expensive in China, forcing shoppers to look abroad for their purchases.

That has presented new opportunities for the trade as Chinese jewelry demand is expected to grow across three important platforms: Domestic sales, e-commerce and tourist spending. However, the latter two seem to be a source of tension for the nation’s authorities who want to encourage domestic consumption. Premier Xi Jinping’s stated goal, after all, is to transform China from an infrastructure and export-driven economy to a consumer-centric one.

China’s latest move to increase taxes on products bought from online overseas websites – or so-called cross-border e-commerce – can be viewed in the context of government intervention that ultimately proves a negative for the jewelry industry. The policy, effective April 8, saw the tax on jewelry raised from 10 percent to 15 percent, and watches from 30 percent to 60 percent.

China is by far the world’s largest online retail market with sales of $630 billion in 2015, according to estimates by McKinsey. Directing traffic to local websites therefore forms no small part of the government’s goal to drive domestic consumption.

However, it appears the government’s strategy aims to make purchases abroad more costly. It might be more effective to tackle the core reason why Chinese consumers make their luxury purchases overseas in the first place: The same products are simply more expensive when purchased in China.

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Source Rapaport