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The United States, European Union and Switzerland account for over 70 percent of Hong Kong exports. However, exports to the United States slowed from 22 percent in 2005 to 7 percent in 2006 and recorded a feeble 9 percent in the first 11 months of 2007, fueled largely by a looming recession in the U.S. economy.
While Hong Kong took a beating in its biggest market, it climbed out of the decline by attracting and accelerating sales in emerging markets such as the ASEAN states, Russia, and the United Arab Emirates. Charles Chan, Chairman of the Hong Kong Trade Development Council's Jewelry Advisory Committee, said, "Emerging markets are also making news that shines. Russia grew by 177 percent, and the United Arab Emirates was up 39 per cent in 2007. India and the Chinese mainland were up 45 per cent and 13.5 percent respectively last year."
While the high growth in emerging markets looks explosive, sometimes this represents the way the import duty has been adjusted, said Lawrence Yung-Yi Ma, president of the Diamond Federation of Hong Kong. "The base number is so small that even if one more big company decides to import, then the whole picture is quite different."
Tapping into the same emerging markets was what the record 2,306 global exhibitors at the fair had in mind. Promotion via participation at the fair was an effective way to connect and explore export opportunities with Asian and Middle Eastern buyers.
For the more than 50 Israeli diamond manufacturers and exporters exhibiting at the fair, diamond trade with China has been steadily growing, with many already operating through offices set up in Hong Kong. Tel Aviv-based Moshe Namdar and Co. is one such enterprise, with offices in Hong Kong as well as in Kunming, China.
For Yeal Namdar, operating the New York office, "The fair is an annual must-attend event in which the company has been participating for two decades." While business with China has grown substantially, the company is vigorously pursuing opportunities in other Asian markets like Vietnam, Thailand, and India.
According to the Israel Diamond Institute, a non-profit company representing the Israel Diamond Industry, Asia is a major export destination representing close to 20 percent of Israel's total polished diamond sales. IDI set up a special pavilion at the fair to promote its diamond industry.
While recessionary trends in the West have lowered sales volumes to North America, rising inflation in Asia is a growing concern with manufacturers, wholesalers and retailers. "Inflation is a big worry within Asia and we will hit tough competition from Chinese and Indian manufacturers," Namdar said.
According to media reports, some Indian buyers at the fair were already complaining of inflated prices and were largely pessimistic about profit margins for the current year, given the rising cost of oil and the weak U.S. dollar.
For Hong Kong, where the jewelry industry is largely export-oriented, varying economic conditions in the West and in Asia present a unique challenge in sustaining future market share as well as maintaining price competitiveness.
"The biggest concern for retailers here is inflation. On the one hand, it helps consumption, on the other, costs like rental and salary are in general going up," said Ma, who is also the executive director of the Lee Heng Diamond Group. "Expect rental space to go up by 15 to 50 percent on average in the coming months," he said. "International brand names all want to have their flagship stores in Hong Kong and that drives up the whole retail space prices."
As the Hong Kong dollar exchange rate is pegged to the U.S. dollar, it is currently artificially low, as the Hong Kong economy is strong while interest rates are almost at U.S. levels. This, Ma believes, is the problem facing wholesalers who are paying more for rough diamonds or raw materials. "The wholesale business to Southeast Asia is better, but jewelry manufacturing and wholesale to the U.S. market is under pressure," Ma said.
Price hikes in raw materials and precious metals may have trimmed down profit margins of stakeholders. However, the Hong Kong Trade Development Council believes that, compared to other industries, jewelry makers are in a better position to pass cost increases onto buyers and end users.
However, not many of the 31,333 buyers at the show may have realized Hong Kong's precarious position, caught between the cooling economies of the United States, its prime market, and the red-hot inflated economy of mainland China, one of its largest suppliers of raw materials.
Ma, however, is positive. "We cannot treat this scenario as bad but should look forward to growth from emerging markets to help the business stabilize and continue to maintain growth for the coming year," he said. If that means shifting focus and tapping into a more vibrant Asian market, then Hong Kong seems to be on course, with impressive jewelry export figures showing a rising trend in 2007, in the ASEAN nations, the Chinese mainland and the United Arab Emirates.
"Almost 80 percent of the fair contains diamond exhibits," said Connie Lau, chief executive of the Hong Kong Consumer Council. "It is a big attraction and an important part of the exhibition." Spectacular as it might be, it left few choices for the average consumer. Admiring the sparkling stones was one.
