“GOLD STANDARD”

Posted: 07 Feb 2011 08:02 PM PST

BEIJING, Feb. 8 -- Beijing bank clerk Liu Chang, 26, and her fiance, Gao Shan, 28, are counting the cost of young love -- skyrocketing housing prices and the cost of their once-in-a-lifetime wedding ceremony.

"We are tightening our belts after paying a 600,000-yuan down payment on a 70-square-meter home with the help of our parents, and the wedding ceremony will cost at least 30,000 yuan," says Liu.

So why did they splash out on a week-long holiday in Hong Kong and Macao just a few months before their big day?

Doing the sums, they reckon they saved 4,000 yuan (608 U.S. dollars) by buying their wedding rings in Hong Kong, where the absence of sales tax and a strengthening yuan, the Chinese currency, are drawing a rising tide of young mainland lovebirds.

"At any jewelry store in the Causeway Bay shopping center, you can see swarms of young Chinese tourists like us," says Liu.

"We used the money we saved having a week-long holiday, taking in the sights of Hong Kong and Macao," says Liu.

The value of the yuan, or renminbi, has risen steadily against the Hong Kong dollar, which is pegged to the U.S. dollar, from about 1 to 0.93 in 1997 to the current 1 to 1.18.

Two wedding rings from Chow Sang Sang, a Hong Kong-based jewelry franchise, cost just 9,700 Hong Kong dollars, or 8,245 yuan, compared with 10,500 yuan in Beijing.

After a discount of 10 percent -- rarely found in mainland stores, but offered almost year round in Hong Kong -- they saved another 825 yuan.

On a diamond ring from Chow Tai Fook, another Hong Kong jewelry brand popular with mainland visitors, Liu says they saved another 1,000 yuan.

GOLD STANDARD

Mainland tourists account for 35 percent of sales at Hong Kong's major jewelry stores, and the percentage is rising, says a report issued by Li &Fung Research Center of Hong Kong trading giant Li &Fung Group last year.

And spending by mainland tourist was up by more than 30 percent each year since 2008, says the report.

But price is not the only draw for young mainland consumers who are increasingly discerning -- and skeptical -- about the quality of the purchases.

"We traveled thousands of miles to buy wedding rings because we have more trust in Hong Kong jewelry and stores," says Liu. "The rings are a token of our love that we will keep for life, so even if it is a bit more expensive, we prefer to buy brands we can trust."

The mainland boasts thousands of jewelry brands that are about 30 percent cheaper on average than Hong Kong brands, says Zhang Shurong, vice head of the Beijing-based China Light Industry Jewelry Center, a government advisory service for jewelers.

However, more than half of young urban mainlanders polled by the Hong Kong Trade Development Council (HKTDC) in 2004 and 2007 were willing to pay a premium of up to 35.9 percent on average for Hong Kong branded jewelry offering the same metal content as equivalent mainland products.

Their attitudes have been forged by frequent media reports of quality problems with mainland jewelry-makers, 95 percent of whom are small and medium sized firms.

A quality inspection report released by Beijing Administration for Industry and Commerce (BAIC) in November last year showed 56 jewelry items made by 26 jewelers had fake materials and inadequate metal content.

Even the reputation of Hong Kong brands was undermined when the BAIC listed Chow Sang Sang for having insufficient gold content in their 18K gold bracelets.

Chow Sang Sang reacted quickly, issuing a statement that said no items sold on the Hong Kong market were involved in the quality scandal. It pulled all 18K items off shelves and offered buyers full refunds at mainland branches of the chain.

While an estimated 90 percent of Hong Kong jewelers have transferred their manufacturing bases to the mainland to cut costs, their production processes are monitored by a management system set up by the parent company in line with quality standards like the Q-Mark of the Federation of Hong Kong Industries, says Zhang, a jewelry authentication expert.

"Hong Kong jewelers, as standard practice, apply stricter quality control measures to the metal selection and production processes of jewelry sold in the Hong Kong market," says Zhang.

"Stricter laws and more effective enforcement are another reason for fewer quality problems with jewelry in Hong Kong."

Under Hong Kong law, every article made of gold or gold alloy for sale must bear a mark indicating the gold content.

"In Hong Kong, you can buy gold products with 99.99 per cent pure gold, a level very few mainland jewelers can and would produce due to the absence of an established national standard system," Zhang says.

CREATING VALUE

Liu and Gao want to tie the knot in style, and they say mainland jewelry lacks the design flair that they found in the Hong Kong stores.

The two HKTDC surveys showed mainland buyers were mostly drawn to the design of the jewelry, followed by the craftsmanship and quality.

The HKTDC's "Survey of Jewelry Shoppers in Chinese Cities" in 2007 found mainland consumers saw Hong Kong brands as "unique in character," "fashionable" and "trend setting." Asked to describe Hong Kong jewelry, they used the terms "innovative," "creative" and "tasteful."

Demand is reflected in the steady and sharp increase of exports to the mainland. HKTDC figures show total Hong Kong jewelry exports fell by 23 percent in 2009, but exports to the mainland soared by 68 percent.

Faced with escalating costs of precious metals and stones, design is the most effective way of raising value, says Bi Lijun, vice head of the Gems and Jewelry Trade Association of China.

"Due to lack of finance and talent, more than 70 percent of Chinese jewelers have no in-house designers," says Bi. "They mainly compete on low manufacturing costs and rely on templates imported from Hong Kong, which are often not the latest."

Designers must understand the requirements of customers and the latest trends, says Bi, who wants mainland colleges to set up jewelry design departments and to encourage young people into the profession.

He urges mainland jewelry makers to invest more in research and development to create advanced technologies for making quality products.

"R&D and innovation lead to product quality and diversity. To arrive at innovative products, we have to think beyond the conventional and develop new technologies that turn novel ideas into reality," Bi says.

LOST OPPORTUNITIES

New technologies have also ensured Hong Kong jewelers maintain their standards.

Using in-store readers or entering the code on the website, www.j-id.org, shoppers and traders in the region can track the history and other details of an item of jewelry.

The world's first Global Jewelry Identity (Global J-ID) Management Label Scheme launched in 2009 by the Hong Kong Jewelry Manufacturers' Association is designed to increase consumer confidence.

According to the website, five major Hong Kong jewelers have joined the program, which comprises the Laser J-ID Scheme and Label J-ID Scheme.

In the Laser J-ID Scheme, product information is encoded into a 2D barcode, measuring about 3mm x 1mm, permanently marked on the product with a laser engraver. It includes codes for the company, product type, metal type and certification information.

In the Label J-ID Scheme, a barcode is printed on the invoice with a 10-digit Global J-ID code. The buyer can enter the code on the official website to read the company and product information.

Both Zhang and Li say mainland jewelers must produce jewelry that matches Hong Kong and international standards in quality and design -- or risk losing out despite growing mainland demand.

Mainland sales of gold and silver jewelry grew 46 percent last year, according to the National Bureau of Statistics earlier this month.

However, since the central government opened up travel to Hong Kong to individual tourists in 2003, journeying between Beijing and Hong Kong has become more convenient.

A return hard sleeper train journey -- a 24-hour trip each way -- is 574 yuan, with 50 percent off purchases of four or more round-trip tickets, compared with almost 2,900 yuan for air tickets. Even the more luxurious soft berth, at 934 yuan, is less than half the cost of a flight.

A total of 22.47 million mainlanders visited Hong Kong last year, an annual rise of 27 percent and accounting for 62.4 percent of all visitors to the region, according to the Hong Kong Tourism Board (HKTB).

Zhang's warning to mainland jewelers is clear: "The individual traveler scheme covers 49 cities and is expected to expand, so the trend of young mainlanders buying jewelry in Hong Kong will be unstoppable if the mainland brands fail to improve."

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