The jewellery industry has fared better than expected under the gigantic impact of the Covid-19 pandemic which has literally killed the global jewellery business since early 2020. Surging demand for luxury products from China and the United States has shielded the industry from further storms. Ken Lo, president and director of Hong Kong Jewellery & Jade Manufacturers Association (HKJJA) has talked with Hong Kong Jewellery, shedding light on some of the trending topics in the industry − the China factor, the new normal, trade fair prospects and industry outlook.
The swift lockdown in China early last year amidst the initial outbreak of the pandemic had brought all manufacturing activities in the country to a halt. It came as a wakeup call for Hong Kong manufacturers who have shifted over 90-percent of manufacturing procedures northwards to diversify their production locations. What would you say about it?
Everything happened so quickly. It caught everyone off guard when production just came to a complete stop in China during the initial lockdown. A question sprang to our mind: “Should we reach out to other production bases to diversify risk?” While the idea started to grow, we noticed that the social and economic activities in China were steadily getting back on track in a few short months thanks to the decisive anti-pandemic measures taken by the central government to contain the virus. Instead of relying less on the Mainland, we have reinforced our believe in producing in the Mainland in future.
Over the years, Hong Kong manufacturers have been on the lookout for alternative production bases when facing the surging costs in China. Thailand, Vietnam and Turkey are among the mostly sought destinations. During the Sino-US trade war started mid-2018, some jewellers shifted to produce in those countries in a bid to avoid the additional import tariff levied by the States. In the end, however, most of us still prefer to produce in China for effective communication. After all, language barrier is the hurdle of producing in non-Chinese-speaking regions.
A recent trend has seen a growing number of Hong Kong companies relocating value-adding processes including design and mould making back to the city from the Mainland where the escalating production costs have narrowed the gap with Hong Kong.
Navigating the new normal has become the order of the day. How do you see “the new normal” from a jeweller’s perspective?
We have seen quite a few online exhibitions from around the globe over the last year and a half. As a matter of fact, I had suggested we do more virtual events right in the early stages of the outbreak when travel restrictions were getting tighter.
I think the size of live exhibitions in near future would reduce with bigger booths and lesser participants due to the social distancing measures on one hand, and the shrinking market on the other. Event organisers should take note of this new norm.
Physical shows are beyond comparison in terms of effectiveness, which is apparent from the unenthusiastic responses from digital-show participants. Although a certain kind of merchandise at below HK$10,000 retail, for instance, can sell online, I think most of the fine jewellery have to be touched and viewed before a deal can be closed.
For most of Hong Kong’s jewellery manufacturers who target overseas markets, e-commerce is not mainstream. Nevertheless, we should not neglect the accelerated pace of digitalisation brought on by the pandemic. At the end of the day, it is the online-to-offline business model that perfects customer’s experience.
How has Hong Kong’s jewellery industry been faring in the Covid crisis?
During the lockdowns, the number of visitors from mainland China has drastically slashed. However, the impact on local retailers has been relatively less severe as mainlanders are not their sole customer base. Most of the stores can still sustain normal activities with restrained local consumptions, while some were shut or operated shorter hours.
The manufacturing and export sector, nevertheless, has been heavily stricken by the pandemic which shattered the entire jewellery supply chain with mines closed, factories shut down, trade fairs cancelled. Although we could do nothing to reverse the situation as we were rather passive, we fought for survival with perseverance and determination. Some jewellers still travelled abroad to secure orders, while some others had to seek to wage reductions or retrenchments.
On the positive side, most of us in Hong Kong are SMEs with a small headcount. The local government and the banking sectors have taken financial measures to help us ride through these difficult times. As our major export markets are gaining momentum, I believe our industry will soon be getting back on track.
Hong Kong’s jewellery exports during the first five months this year achieved HK$28.6 billion, the highest over the last decade year-on-year, with China having the lion’s share. How would you interpret the encouraging figures?
It is a straightforward calculation. Let’s say we have an annual budget of HK$100 for jewellery. Due to the health crisis in 2020, we did not spend the money and saved it up for 2021. For some, even if they spent HK$20 to buy something else in 2020, and decided to cut the 2021 budget by half to HK$50 owing to the recent salary cut, they still have an aggregate sum of HK$130 to spend on jewellery in 2021, much higher than the annual average. It explains the soaring demand for jewellery this year.
China accounted for nearly 38 percent of Hong Kong’s total export values during the said period, ranking the top market. It was the first major economy to spring back from Covid-19. The robust recovery, growing consumption power, together with the so-called “revenge spending” did contribute to the staggering number.
Nevertheless, the export boom will lose steam in a longer term when consumer demand growth in China becomes moderate as the pent-up demand has come to fruition. A period of market adjustment will follow. It is difficult to predict the level of adjustment at this moment. Even if it is on a downward trend, it will outshine the 2020 performance. I think the worst seems to be over for Hong Kong’s jewellery industry.
Moving into new markets is a constant quest for Hong Kong’s jewellers. Would you give us some hints on making a prudent choice?
At the onset of Covid-19, the Sino-US trade war was in full swing. The subsequent tariffs and trade barriers set by the United States have made imports to the country difficult. I told our association members that we should not rely too much on the western markets, but gain greater access to the Mainland where the population size is larger than the States and Europe combined.
Over the years, we have looked to make inroads into emerging economies such as Vietnam, Myanmar, Indonesia, etc. They have their own market uniqueness, strength and potential. However, when it comes to a promising market, purchasing power, industry integrity and trade regulations are paramount. China is unbeatable in this regard.
Meanwhile, we are not going to give up the traditional European markets including Italy, United Kingdom, Switzerland, France, Germany, etc. Our association has forged a very close bond with the Vicenzaoro fair in Italy, for instance. The Asian District, formerly Hong Kong Pavilion, we co-organised with the International Exhibition Group (IEG) is unarguably the largest overseas national group in the fair. Despite the reduced scale in recent years due to global economic downturn and the pandemic, we hope to bring the best from Hong Kong to Vicenzaoro, the window to the sophisticated markets in Europe.
What is your outlook for Hong Kong’s jewellery industry?
It is said that when there are people, there are demands for jewellery. The staunch support from the huge domestic market in the Mainland has bolstered my confidence in the future of Hong Kong’s jewellery industry.
China remains the jewellery manufacturing hub for Hong Kong despite the sanctions and additional import tariffs charged by the States during the trade disputes with the Mainland. I see no reason not to maintain the most effective Mainland-Hong Kong collaboration in future.
The United States will keep topping the list of our export markets besides China. I really hope, in the post-Covid era, the US jewellery industry would be more regulated in trading terms. After all, we have suffered enough of the unfavourable practice of purchasing on-credit all these years.
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