Watch market development in China
An analysis of the Chinese watch market requires taking into account imports to both the mainland and Hong Kong. Greater China has, in fact, become the largest market for Swiss watches.
David Chang*
According to statistics of the Federation of the Swiss Watch Industry, in 2005 China became the tenth largest importer of Swiss watches (CHF 351 million CHF), increasing 25,7% from 2004. Among the top ten countries, China is the one with the largest year-on-year increase. In September 2006 alone, the total value of Swiss watches exported to mainland China was CHF 36,7 million, an increase of 69,9% compared to the same period in 2005 and of 128,3% versus 2004.
The value of exports to Hong Kong in the same period was CHF 167.6 million. Many citizens on the mainland buy watches in Hong Kong because of the local tax-free policy for imported watches, resulting in lower prices. Some mainland cities have simplified procedures for travel to Hong Kong and Macao, allowing growing numbers of visitors to these regions. An analysis of the watch market therefore requires taking into account imports to both the mainland and Hong Kong. Greater China has, in fact, become the largest market for Swiss watches. Furthermore, according to Xinhua Online (China’s official news agency), Swiss watches represent 99,6% of China’s high-end watch market, demonstrating their unrivalled status.
Economic development stimulates watch consumption
In 2005, the GDP (gross domestic product) of China exceeded CNY (yuan) 18,000 billion, an increase of 9,9% compared to 2004. China’s foreign exchange reserves now occupy the first place in the world, and China has become the country with the fastest economic development. This has certainly been a benefit of the “Reform and Opening” policy which began in the late 1970s. Its main achievements were attracting many foreign corporations to invest in China and starting a transformation of the economic system. The result has been many privatized corporations and also many entrepreneurs. After 20 years of development, their elite have become wealthy figures with great social influence. According to a Forbes November 2006 ranking of China’s richest people, the sum of the net assets of the 40 richest exceeds CNY 300 billion.
With China’s economic development, the consumption capacity of the Chinese has also grown. China still has the world’s largest population. According to the first Asia-Pacific Wealth Report launched by Merrill Lynch and Cap Gemini, the Asia-Pacific region is the one in which the number of “High Net Worth Individuals” - those with net financial assets of at least USD 1 million, excluding their primary residence and consumables - is increasing the fastest. In 2005, China occupied the sixth place with a growth rate of 6,8%. Rich Chinese have taken the lead in going abroad and are becoming more knowledgeable about the different watch brands in mature European and American markets. This group clearly plays an important role in China’s watch market.
Change in the retailing and importing system
In the 1990s, a succession of joint venture watch retailers came to China. Beforehand, imported watches were mainly sold by state-owned distributors on the mainland, who had a certain degree of monopoly status. However, the state-owned watch shops were weak on quality of service and choice of brands. The commercial competition resulted in a change in domestic watch retailing. An attractive shopping environment and professional repair service have become a new trend.
China’s vast market has led to the expansion of sales points. Chinese consumers’ increasing demand for Swiss watches also promoted the rapid development of retail shops. For example, Shanghai Xinyu Watch & Clock Group Ltd, founded in 1999, depends on more than 70 retail shops in China and plays an important role in building the image and sales of different watch products in the Chinese market.
In December 2001, the Chinese government joined the WTO and began to repeal the import quota on watches starting on January 1, 2003. Watch markets that had previously been restricted were opened further. This measure also incited many watch manufacturers to look for development opportunities in the Chinese market. At about the same time, while the Swiss watchmaking industry was at the height of a period of acquisitions, weak watch companies could rely on the resources of the larger group to develop new markets. These unprecedented historical opportunities have led to close contacts between the Swiss watchmaking industry and the large Chinese markets.
In 2003, when I met Mr. Michel Nieto (CEO of Baume & Mercier) for the first time in Beijing, Baume & Mercier had not yet officially entered the Chinese market. But in October 2006, when I met him once again in Beijing, he told me that Baume & Mercier now had more than 60 sales points in China. The surprising speed of development had very much to do with the rapid development of watch retailing in China. On August 8, 2006, the prestige watch distributor Tourneau entered Shanghai. I asked Mr. Howard Ronald Levitt (president of Tourneau) at the inauguration how he viewed the Chinese watch market. He said that the Chinese market can totally surpass the American one, and this is only a matter of time. ■
*Editorial Director, magazine and Watch Column
