Big hand for duty cut on watches
Retailers welcome lower levies on Swiss timepieces but they are unlikely to stop Chinese from buying luxury items abroad
The latest tariff reduction agreement between Switzerland and China is expected to cut the retail prices of Swiss watches, but is likely to do little to change mainland consumers' habit of shopping for expensive timepieces outside their home market.
The Ministry of Commerce said earlier this week that China has agreed to cut import tariffs on Swiss watches by 60 per cent over the next decade as part of a free-trade agreement signed during Premier Li Keqiang's visit to Switzerland last week.
The tariff adjustment was hailed as a stimulus for the local high-end watch market, which has been slowing down in recent months as the government cracks down on extravagant spending by officials.
Philippe Charriol, chief executive of the Swiss watch and jewellery brand Charriol, which has more than 110 franchise stores in China, said: "We have been expecting this [tariff cut] for years.
"The retail prices of Swiss watches will decrease slowly under the new policy in China. This will definitely attract more Chinese consumers to buy Swiss watches locally," Charriol said.
Currently, the tariff rate for Swiss watches imported into China is around 15 per cent. The reductions will start with a cut of almost a fifth this July, followed by a 5 per cent cut each year for nine years.
Zhang Hongguang, deputy director of the China Horologe Association and a participant in the tariff negations with Switzerland, said he expects the impact of the tariff cut on local watch market to be limited.
He said the import tariff now accounts for only a small part of the duties on Swiss watches.
The government also charges a 17 per cent value-added tax and a 20 per cent consumption tax for watches priced above 10,000 yuan (HK$12,560).
"Even with the tariff reduction, we believe, it would be unlikely to turn around the trend of more and people going to Hong Kong and Europe to buy watches," Zhang said.
Currently, Hong Kong is the largest importer of Swiss watches in the world. Statistics from the Federation of the Swiss Watch Industry show Hong Kong imported 4.37 billion Swiss francs (HK$34.5 billion) of watches from Switzerland last year, accounting for 20 per cent of Swiss watch exports.
The United States and China, the other two top importers, accounted for 10 and 7.7 per cent of exports respectively.
Around 70 per cent of the Swiss watches sold in Hong Kong are bought by customers from the mainland, the China Horologe Association estimates.
Gabriel Au, chairman of the Federation of Hong Kong Watch Trades & Industries, said the new policy would certainly add pressure to the city's watch retailers, although it would not be significant.
"Consumers will not judge the goods only by prices," Au said. "Hong Kong's watch shops have a wider range of options for shoppers and the salespeople are more professional. More importantly, the quality of watches sold in Hong Kong have greater guarantees than the ones sold on the mainland."
The Hong Kong-based watch retailer Hengdeli, which operates hundreds of shops across the border, saw its shares rise 7.2 per cent yesterday to HK$2.24, while shares in Oriental Watch rose 3.5 per cent to HK$2.36.
Watch retailing in both Hong Kong and the mainland has been hit hard since the central government cracked down on corruption, barring civil servants from giving or accepting expensive gifts.
Swiss watches imported into the mainland tumbled by 25 per cent from January to April this year, according to the Federation of the Swiss Watch Industry. Swiss watches imported into Hong Kong dropped 8.5 per cent during the same period.
Zhang said that under the new tariff rate, some relatively cheaper Swiss watch brands such as Longines, Titoni and Pronto will have a better chance to expand their customer base in China, as they are likely to squeeze the middle-end market occupied by homegrown manufacturers.