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Taxation of export and import of jewellery products in China

Taxation of export and import of jewellery products in China

Production:
There are the following production-related taxes currently in force in China:

  • VAT: At present, production VAT is being imposed, though consumption VAT is being introduced in some sectors in the Northeast of China. There are two levels of taxes, namely a base rate of 17% and a low rate of 13%. Precious metal products and minerals that have not undergone processing are taxed at the rate of 13%. Processed stones and other precious metals jewellery are taxed at 17%. In order to simplify the tax administration, the State further decided that small scale producers with annual sales volume of less than one million RMB will pay taxes at the rate of 6%. Small scale wholesalers engaged in the jewellery industry with annual sales below 1.8 million RMB would pay taxes at the rate of 4%.
  • Resources Tax: Resources tax is imposed on those units which develop taxable mining products within China. This is a specific tax. For non-industrial and jewellery-grade diamond, resources tax is 10 RMB per carat, while for industrial diamond, it is 2 RMB per tonne.
  • Consumption tax: Consumption tax is an indirect tax imposed on consumers of particular consumer goods and it is being levied in China at present on items like cigarette, liquor, cosmetics and jewellery. Several jewellery items are taxed at the rate of 10%. Non-mounted diamond and diamond jewellery, diamond-inlaid precious metal jewellery and gold jewellery are taxed at 5%. There are some indications that the 5% consumption tax on gold jewellery might be revoked in 2004. China Gold Association has proposed to the State Administration of Taxation that the 5% consumption tax on gold jewellery be scrapped. It is reported that SAT has attached great importance to the matter and delivered it to the State Council. Consumption tax was 10% in 1993, which was reduced to 5% in 1994, when the tax burden was transferred from the consumers to the retailers.
  • Import: Imported raw materials for jewellery are taxed at a lower rate. For instance, MFN rates for sorted and unsorted natural pearls are respectively 25.8% and 25.7%, non-processed industrial diamond (both natural and synthetic) and diamond powder are free of tax, import tax on non-processed gemstones is 3%. Finished products are taxed at a higher rate. For instance tariffs on precious metal jewellery are 30% (25% under Bangkok Agreement). Rates have been falling since China’s accession to the WTO. Import tariffs for the year 2004 are given at appendix E in Resources section.
  • Export: Consumption tax is not imposed on export products. Export tax rebate is granted on export of gemstones (13%), diamond (17%) and natural and artificial pearls (5%).
  • Special taxation policies within SDE:
  • No import VAT/ consumption tax or tariff is levied on imported diamond traded directly within SDE.

  • Diamond traded within SDE is exempt from VAT and consumption tax.

  • Domestic diamond, once it enters SDE, is recognized as export, and export rebate is granted while consumption tax is exempted.

  • Diamond taken out of SDE for sale in the domestic market is taxed.

Articles source: Gems & Jewellery Industry in China, Embassy of India, Beijing
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Jewelery Distribution Network in China

Jewellery Distribution Network in China

The mechanism of raw material supply and finished products circulation can be summarized as follows: Enterprises smelting precious metals and diamond trading companies sell raw materials like gold and diamond through exchange platforms (for instance Shanghai Gold Exchange and Shanghai Diamond Exchange) to jewellery enterprises (SGE/SDE members or units doing self-processing).

Then these jewellery enterprises can do the following:

  1. Wholesale trading of these raw materials to other non-SGE/SDE retail enterprises, who then sell it to ultimate consumers through their own retail shops.
  2. Sell it directly to the ultimate consumers through their own retail shops.
  3. Supply these as raw material to other non-SGE/SDE member retail enterprises who then distribute these to other non-SGE/SDE members or sell it directly to consumers through their own retail network. Sometimes these units entrust some SGE/SDE members to buy jewellery/raw materials in the exchanges on their behalf. The non-members can also supply the raw material thus acquired to the producing and processing firms.
  4. Supply these raw materials directly to the producing and processing firms, assigning them to produce jewellery of particular design. After production part is complete, the processing firms return them to the jewellery enterprises for marketing, or they themselves do wholesale marketing to non-member retail enterprises, who sell it to the ultimate consumers.

The major jewellery enterprises are often members of SGE/SDE, buying raw material in the two exchanges based in Shanghai. Then they either produce jewellery themselves or, in majority of the cases, entrust some processing enterprises to produce their chosen designs. Thereafter they utilize their own retailing networks to sell the product to ultimate consumers. Jewellery enterprises with substantial turnover volume, who are, however, not members of SGE/SDE, usually entrust member enterprises to buy raw material for them in the exchanges, and thereafter, either produce jewellery themselves or, in most cases, employ some processing firms to do so. Then they use their own retail network to sell the product to consumers. Other non-member retail enterprises can buy jewellery products through three channels:

  • Buy in bulk from member enterprises and then sell through own retail shops
  • Directly buy in bulk from the producing and processing firms and then sell through own retail shops
  • Buy in bulk from non-member enterprises and then sell through own retail shops

These enterprises are usually small retailers and their retail networks are usually found in the second-and third level cities, townships and even villages. They mainly buy from members and using the member’s brand image, make profits by selling in the small areas, where the network is not very well-established. Some of them also buy relatively cheaply in bulk from the processing firms and then reap a mark-up profit by selling in small places. While selling, they can also use their own brands. However, the third channel mentioned above is very rare.

Retail Market

Within a few years’ time, China’s jewellery market has developed to occupy 20% of the global market, with sales volume next only to the US and Japan. The following table gives an indication of the speed of development:

Sales volume: (Source: China Gemmological Association)

  • 1998 = RMB 76.2 billion
  • 1999 = RMB 80.6 billion
  • 2000 = RMB 88.0 billion
  • 2001 = RMB 96.5 billion
  • 2002 = RMB 10.53 billion

The main sales volume indicators in the year 2002 are as under:

Category 2001 2002 % Change over 2001

  • Gold jewellery (ton) 213.7 202.5 -5.24
  • Platinum jewellery (million ounce) 1.3 1.48 +13.85
  • Silver jewellery (ton) 230 250 +8.07
  • Diamond jewellery (RMB billion) 14.6 17.6 +20.55
  • Pearl jewellery (RMB billion) 5.2 6 +15.38
  • Imitation jewellery (RMB billion) 2 2.5 +25

(Source: China Gemmological Association)

In some of the major categories of jewellery products, China ranks among the top players. In terms of consumption of gold jewellery, China is the world number three, while it is number one in platinum jewellery consumption, accounting for over 50% of the world consumption of platinum used in jewellery. Diamond, red and blue gemstone consumption is also rising at the rate of 30-40% per annum. A list of top jewellery retailers in China is given at section C of Resources of this book.

Opening policy:

In 2002, in line with market access principles of China’s WTO entry, China first revoked the approval system in the retail trade of gold jewellery, changing to a system of registration, and followed it up by formal operationalization of Shanghai Gold Exchange, thereby putting an end to the long history of planned economy where gold was an item of monopoly purchase and allotment by the state.

Second, functioning of SDE in June 2002 facilitated a fall in taxes and tariffs on import of diamond, including import tariffs, VAT and consumption tax. After readjustment, tax fell from 33.9% to about 17%. This, while promoting import, discouraged smuggling and opened up possibilities for export of diamond products.

Other liberalization measures include changes in the government’s diamond classification system. The old grading system described flawed diamonds as ‘deformed’-thereby deterring many potential buyers, who could not afford the small quantity of diamonds that are perfectly flawless. Now, the less-than-perfect gems will carry a rather less loaded and more acceptable ‘P-grade’ classification. Opening-up of the gold market brought the two closed markets of gold and gold jewellery together.

Product Diversification:

After China’s reforms and opening-up, it was in 1987 that the common people first demonstrated a pent-up demand for jewellery, which, however, was only for solid metal gold jewellery. By 1993, solid gold jewellery could no longer meet the increasing demand for diversified products from the noveau rich, who turned overseas for purchasing inlaid jewellery. This laid the basis for the development of inlaid jewellery in China. From 1996 onwards, platinum and diamond-inlaid silver jewellery gradually gained currency and within a short span of time, captured the main markets in China’s top- and middle-level cities and met the requirement of different classes of consumers. In recent years, diversification of the jewellery market has progressed further, with special, new and superior products appearing every day. Pure gold jewellery, Inlaid jewellery, platinum jewellery, ruby, pearl, jade, crystal, agate etc. all have a market in China.

Articles source: Gems & Jewellery Industry in China, Embassy of India, Beijing
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Jewellery Market in China – Geographical Distribution

Jewellery Market in China – Geographical Distribution

wholesale pearlsIn the 1980s, there were only 10 designated enterprises for manufacture of gold jewellery. There were in addition 95 other producers of gemstone manufacturers, with a total industry manpower of 20000, annual value added of RMB 160.63 million, sales volume of less than RMB 200 million and foreign exchange earnings of US$ 16 million. As late as 1991, there were only about 100 registered enterprises dealing in gems and jewellery. In comparison, the number of registered producers increased to 2500 by the year 2000. Out of them, state-designated producers numbered 500, while processing enterprises of three varieties, namely, wholly owned foreign enterprises, cooperative joint-venture enterprises and wholly domestic, were over one thousand.

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Before the 1990s, except for a small amount of processed diamond which were exported, demand in the domestic market was absent. Starting 1993, diamond processing enterprises increased in number to over 70 by the end of 2002, with a total employment of 16000, thereby accounting for one-fifth of the global diamond processing industry. With a value added of US$ 0.8 billion, China is the world’s second largest diamond processing nation, after India. There are 500 designated enterprises in gold and platinum jewellery, and 4000 gems and jadestone producers. Production enterprises under individual management exceed 20000. Manpower employed in the gold, silver, gemstone and jade production industries are in excess of 800000. If we include those engaged in individual production, this number can be as high as three million.

Processing as well as sale of jewellery in China is mainly concentrated in the three major centres of Guangdong, Shanghai and Beijing. They are three centres of China’s economic development, with maximum concentration of consumption. They also have their individual and unique background for development of gems and jewellery industry in China.

  • Guangdong: Guangdong boasts of two major coastal open cities of Guangzhou and Shenzhen. Guangzhou is the jewellery production and sales base area of the Pearl River delta. The biggest jadeite market and the famous Huahan antique jadeware market are located in Guangzhou. Panyu district of Guangzhou is the most important gems and jewellery processing centre in the country, accounting for a fifth of the production, processing and export volume of China’s gold and mounted jewellery.
  • Shenzhen: Shenzen enjoys absolute advantage in China’s gems and jewellery market. Shenzhen is an important centre for manufacture and processing of gold jewellery. It is a centre for wholesale trade, information, materials trade as well as export. After the establishment of Gold Jewellery Mansion in Shenzhen, the city is emerging as the logistics centre for gold artefacts trade in China. Shenzhen is also the first Chinese pilot city for reform of administrative mechanism in gold and silver. It enjoys locational advantages of proximity to Hong Kong, one of the world’s three largest trading centres in the jewellery industry.
  • Shanghai: Shanghai is the biggest city in China, with the largest volume of consumption. It is the biggest jewellery handicrafts manufacturing centre, with annual trade volume of over several billion US dollars. It is China’s biggest gold and gold jewellery consumer. Over 200 enterprises in Shanghai engaged in jewellery and diamond all occupy frontier places in China. Shanghai’s gold consumption is one-eighteenth of the entire nation, while shares of sales volume of diamond jewellery and platinum stand at 10% and 35% respectively. With the establishment of Huatong Silver Exchange Market, SDE and SGE, Shanghai has emerged as the major centre for trade in raw materials for jewellery industry.
  • Beijing: Beijing is the centre of China’s politics, economy and culture. It is also an important domestic market for jewellery. There are more than 100 enterprises engaged in platinum and platinum inlaid jewellery. Consumption of diamond wedding rings in Beijing is next only to Shanghai. Retail markets abound in Beijing, though they are somewhat dispersed.

Articles source: Gems & Jewellery Industry in China, Embassy of India, Beijing
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Freshwater Pearls Wholesale – Pearls Jewellery Market in China

Freshwater Pearls Wholesale – Pearls Jewellery Market in China

wholesale pearlsPearl culture has registered fast and comprehensive growth in both the seawater and the freshwater variety, establishing a requisite scale and producing high grade, high technology products. China’s production of freshwater pearl of over 800 tons accounts for around 95% of the global total. Seawater (Akoya) pearl production at 18 tons also places China at the forefront of the world producers. (details info: freshwater pearls wholesale)

China is abundant in natural pearls. China’s seawater pearl industry, second only to Japan, with an annual production volume of about 20 tons, is composed of three main culture bases located in the south, namely, Liusha in Guangdong province, Hainan province and Beihai in Guangxi autonomous region. About 90% of all households in Liusha are engaged in marine pearl culture. (Reference: Freshwater Pearls Wholesale)

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Photo & details info: freshwater pearls wholesale

Annual production of seawater pearl is about 12-13 tons, with processed pearls of about 5-6 tons. 90% of the production is exported abroad. Production volume is a mere one ton or so in Hainan, but the pearls are quite expensive due to their large size and better quality. Yingpan in Beihai is a major marine culture farm base with a production volume of 8-10 tons every year. Freshwater pearl industry in China experienced fast growth since the 1980s. In the past, the government controlled export, both in volume and prices. A part of the domestic wholesale trade used to be exported to Hong Kong through grey channels. In the mid-1980s, major breakthroughs were achieved in freshwater pearl cultivation, and better quality, bigger pearls of 6 millimetres could be produced. Apart from Hong Kong, Suzhou in Jiangsu province and Zhuji in Zhejiang province emerged as major trading centre for freshwater pearl. In 1992, government control on exports was lifted. In 1998, large sized pearls of 1 centimetre were cultured. At present, China produces about 800-1000 tons of freshwater pearl, accounting for about 95% of the world total. (details info: freshwater pearls wholesale)

China’s freshwater pearl farms are located in the provinces along the middle and lower streams of the Yangtze River; of which Zhejiang province produces about 90% of the national total. While China’s production volume is high in both marine and freshwater pearls, it has a relatively low share (10-20%) of the global trade. This is because China’s pearl processing abilities are low. Trade is transacted in kilograms like grain and agricultural produce. Most of the sold products could only serve as handicrafts item and not really as jewellery products. Thus the value of the product is low. (details info: freshwater pearls wholesale)

Freshwater Pearls Wholesale & Others Jewellery Market in China

China’s jadeite, jade carving and sculpture are known throughout the world. China is the world’s largest processing centre for jade carving and jadeite. The industry is concentrated in Jieyang in Guangdong, Xiuyan in Liaoning, Hotian in Xinjiang, Nanyang in Henan and a few places in Yuannan province and Guangxi Autonomous Region. Processing industries can be found in almost all parts of China, and they together produce annual value added of over 10 billion RMB, of which the best quality is exported. (details info: freshwater pearls wholesale)

China’s gems and jewellery industry mainly lacks in high-value material resources like diamond, red and blue gemstone and emerald etc., but the country is abundant in other semi-precious stones like agate, amber, crystal, jade etc., which are found in several parts of China. Recently, under private initiatives, many businesses have started dealing in these products. According to incomplete statistics quoted by China Gemmological Association, the annual production value of these industries together stands at over 8 billion RMB, and they employ total manpower of about 1 million. (Reference: Freshwater Pearls Wholesale)

Articles source: Gems & Jewellery Industry in China, Embassy of India, Beijing – (details info: freshwater pearls wholesale)
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Platinum Jewelery Market in China

Platinum Jewellery Market in China

wholesale pearlsPlatinum jewellery has quietly emerged as a fast growing sector, vying with the gold jewellery sector as an equal. Within less than 10 years since platinum was first used as jewellery in China, it has developed rapidly. Now, it is quite common to find platinum jewellery occupying the most prominent place in retail jewellery outlets in every city. Since platinum, unlike gold, is not subject to supervision of the People’s Bank of China, the country’s monetary authority, the production and value added chains in platinum jewellery have expanded in number. According to statistics from World Platinum Association, platinum consumption in China in 2001 was 1.3 million ounce, that is, about 40 tons, accounting for 55.6% of the global production. Consumption registered further increase in 2002 and 2003. According to information from the China Gemmological Association, 60 tons of platinum were processed in China in 2003. It is estimated by industry insiders that platinum will be the highlight of China’s jewellery market in the years to come.

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Scale production of platinum jewellery in China started as late as 1995, but the industry has recorded rapid progress since then, with a number of scale platinum jewellery processing enterprises, mainly located in Shenzhen and Panyu areas of Guangdong province. At present, there are two major components in platinum jewellery consumption: platinum jewellery and platinum mounted jewellery, of which the former is by far the largest component.

The industry’s demand for platinum rose at an amazing speed since 1999. In 2001, China overtook Japan as the largest consumer of platinum used in jewellery industry. At the same time, China became the biggest consumer of platinum jewellery in the world. In 2001, when global volume of jewellery-used platinum declined 11%, the figure for China increased by 18% to 1.3 million ounce. In 2002, when global volume rose 12.3% to 2.83 million ounce, the growth in China’s demand for jewellery-used platinum (1.48 million ounce) was higher at 14%.

Year Sales volume of platinum jewellery (million ounce)

  • 1996 = 0.285
  • 1999 = 0.95
  • 2000 = 1.10
  • 2001 = 1.30
  • 2002 = 1.48

(Source: China Gemmological Association)

Platinum is expected to remain a highlight of the gems and jewellery industry in China, with prospects brighter than gold. Due to certain aesthetic preferences of the East Asians, platinum enjoys large and growing market in this region. Thus China and Japan are the two largest consumers of platinum jewellery.

Silver Jewellery Market in China

China is a large producer of silver. In 2003, total volume of silver processed in China was 400 tons, according to China Gemmological Association. When Huatong Silver Exchange was established in Shanghai on 1st January 2000, it was for the first time in 50 years that the silver market was opened up in China. With this, monopoly procurement and distribution of silver was abolished and market trading in silver commenced on the lines of non-ferrous metal trading, allowing direct interaction between producers of silver and the units using silver. At the same time, the administrative license-permit apparatus for processing, wholesaling and retailing of silver products was abolished. Export was encouraged, while import of silver and silver products restricted. Along with marketization of the silver industry, there have been changes in values. People no longer want to buy jewellery as a store of value, and use them more for cosmetic use. This has created increased demand for silver jewellery in China.

Articles source: Gems & Jewellery Industry in China, Embassy of India, Beijing
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