In the market Tuesday, September 4th 2012
Economic prospects, industrial facilities and free trade agreement – just some of the subjects discussed last July by the Swiss mission to China.
Swiss Federal Counsellor Johann Schneider-Ammann and Chinese Commerce Minister Chen Deming (AP Photo/Alexander F. Yuan)
Confronted with austerity in the eurozone and the sluggish American economy, China remains the buoyant market today. Be that as it may, the Chinese leaders are repeatedly voicing their anxiety over the economic difficulties of Europe, the first consequence of which became apparent in mid-July: for the first time since 2009, Chinese economic growth was down to +7.6% in the 2nd quarter. Below +8%, China no longer creates enough new jobs and the threat of unemployment rears its ugly head with all the accompanying risks of social tension.
In the short-term, Beijing’s policy will therefore remain accommodating: lower central interest rates, higher minimum wage, easier terms for lending to companies etc. However, no stimulus plan is on the agenda at this stage, as was the case in 2008-2009.
In the long-term, the Chinese economic paradigm itself has already changed: from an economy driven essentially by foreign investments and exports, the 12th five-year plan (2011-2015) deliberately redirects wealth creation towards domestic consumption, development of energy supplies, high technologies, etc. In a word, China now wants to be more than just the world’s factory.
For the watch industry, the Chinese market is currently the 3rd most important of all our export markets. If we include Greater China and the international tourist market, it is often said that almost one Swiss watch in two is sold to a Chinese client nowadays. Considering the fact that the middle class of this country comprises at least 150 million individuals, a number which is forecast to grow to 400 million in 2020, the purchasing power of that clientele, both now and in the future, becomes abundantly clear.
Against that background, the FH took part in early July in the mission led by Federal Councillor J. Schneider-Ammann who travelled to Beijing, Xiamen and Shanghai successively, and in the 21st joint bilateral committee meeting which preceded that visit. In Beijing, the discussions enabled the expectations and concerns of the Swiss watch industry to be considered in more detail. First of all, the importance of the fight against counterfeiting was raised with Sun Yongfu, Director General for European Affairs in the Ministry of Trade. While encouraging results have been obtained up to now by the various authorities involved, the FH stressed the need for the prevention campaigns not to be interrupted, although that is the intention at present. On the contrary, these campaigns must continue and above all be intensified, especially in some cities in the Southern part of China, such as Dongguan, Shenzhen or Zuhai where the production and sale of counterfeit products are prevalent on a grand scale.
The group went on to protest to Trade Minister Chen Deming against the imposition of a 20% consumer tax on watches costing more than 10,000 RMB, which applies de facto almost exclusively to imported Swiss watches. That policy was felt to be unacceptable. Although press articles have referred to a possible reduction of this tax in recent months, the decision ultimately depends on a prior agreement between the Ministry of Trade and the Ministry of Finance. Minister Chen unfortunately proved reluctant to give a firm undertaking on this point or to indicate a potential time scale.
Throughout the mission, emphasis focused primarily on the negotiations leading up to a free trade agreement in which the Swiss watchmaking industry places high hopes. In talks with all his discussion partners, Federal Councillor Schneider-Ammann argued in favour of an early conclusion to these negotiations. Two discussion rounds are still scheduled by the end of the year. By that time, new leaders will have taken over at the Head of the Chinese State. ■
Federation of the Swiss Watch Industry FH
Article published in FH Revue