Here’s Why All That Glitters Is Not Gold In China Jewelry Market
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Market reports on Wednesday claim that Jewelry manufacturing and retail industry are among the worst hit sectors in China due to a slowdown in the country’s economic growth. Shuibei, which was once the mecca for Jewelry retail and production in China, is now feeling the heat in terms of declining number of consumer visits due to the economic uncertainty in China.
Among the most pertinent reasons for slumping gold demand in China are the economic slowdown as well as the government’s anti-corruption drive which has resulted in low demand for luxury items. However, the most worrisome sign for Chinese gold market is the fact that the consumers have started to become wary of the prevailing economic uncertainty. The shaken consumer confidence is likely to hit the Chinese gold market, which is also the largest market in world for the precious metal.
Analysts say that China is entering the maturity phase of its economic cycle after growing exponentially for the last few decades. As the economic growth slows down, there may be uncertainty regarding how the government and certain sectors deal with it. This situation has been made worse by the devaluation of Chinese yuan by the People’s Bank Of China (PBOC) in August. The yuan has suffered a constant decline since and some analysts believe that this might be a deliberate step by the Chinese government.
The gold prices are already languishing at a six-year low due to global economic uncertainty. Therefore, with China and India, the largest and second largest gold markets going soft, it would only mean more trouble for the global gold prices.
Many of the businesses in the Shuibei district of Shenzhen have suffered a slump in trade due to the current gloomy economic growth forecast for China. This is happening due to a shift in customer confidence from being enthusiastic to wary.
According to Wang Zhichang, regional manager of Glory Gold store, the demand for gold is unlikely to pick up anytime soon due to the fact that consumers have lost confidence in the precious metal. Therefore, it is quite possible that the revenue in the Chinese gold industry may fall in 2016 at least 10%. The revenue of Chinese gold market overall has seen a plunge of almost 20% in the current year.
“As the economic growth slows down, there may be uncertainty regarding how the government and certain sectors deal with it.”
Mr. Wang also claims that due to the worsening gold market conditions in China, a number of factories had shut their operations in the last 12 months. The impact of the current slump in Chinese economy on local gold market is so widely spread that even the nationwide huge gold retail chains like Chow Tai Fook are forced to close outlets and cut down future store openings.Chow Tai Fook, the largest gold retailer in China in terms of market value, had to suffer a 42% plunge in net profit for the period from April to September 2015. This has forced the company to plan opening of only 60 stores in China in its current financial year which ends in March 2016, instead of the originally planned 150 outlets.
A representative of Chow Tai Fook opined that the customers had become more rational with their choices and purchases in the recent times. This translates into the pressure under which the Chinese gold industry is at the moment.
CBN opines that it was only a matter of time before the worse impacts of the economic slowdown in China began to reflect on the country’s booming gold market. With the prices of gold falling on a global level and the economic uncertainty in China, the gold market was always going to suffer. We believe that as the growth in Chinese economy slows down due to the country entering the maturity stage of its economic progression, the consumers are likely to become more wary of making bold acquisitions.
We believe that Chinese customers are likely to want an added value for the transactions they make in the current circumstances. With the gold prices falling globally, the sense of security of holding on to a precious metal is no longer going to be the driving force for its purchase. Furthermore, doubts over economic growth are likely to force the hand of Chinese consumers towards basic necessities more than luxury acquisitions. Therefore, the struggle in the gold market in China is likely to continue at least for the coming couple of years.
Questions & Answers
Q.What are the primary reasons for the significant slump in gold demand within China?
What are the primary reasons for the significant slump in gold demand within China?
The main causes for declining gold demand are China's economic slowdown and the government's anti-corruption drive, which has reduced the appetite for luxury goods. Also, shaken consumer confidence due to economic uncertainty is a major factor.
Q.How has the district of Shuibei been affected by the downturn in the Chinese jewelry market?
How has the district of Shuibei been affected by the downturn in the Chinese jewelry market?
Shuibei, a former hub for jewelry retail and production, is now experiencing fewer consumer visits due to China's economic uncertainty. Many businesses in the district have seen a slump in trade.
Q.What impact has the current market situation had on large retailers like Chow Tai Fook?
What impact has the current market situation had on large retailers like Chow Tai Fook?
Chow Tai Fook, China's largest gold retailer, saw a 42% drop in net profit from April to September 2015. This led them to reduce planned new store openings for the current financial year from 150 to 60.
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