Two Hong Kong businessmen and 13 mainlanders have been arrested in China's biggest luxury-watch smuggling case, involving 35,000 watches worth 224 million yuan. At least nine Hong Kong watch firms have taken part in a nationwide smuggling network since 2005, according to police in Hangzhou , Zhejiang province . The network, with a 'clear-cut division of labour', had evaded 43 million yuan in taxes in the past two years, they said. They said the watches had been smuggled across the border in vehicles and by individuals, or sent by post or courier. Underground banks were used to make overseas payments. Cashing in on large differences between the Hong Kong and mainland luxury watches, smugglers funnelled Rolex, Cartier, Longines and other brands to Zhejiang, from where they were distributed throughout the mainland. Hangzhou police named Dragon Watch, a Causeway Bay company, as one of the Hong Kong watch dealers involved, and a director, Mr Yeung, as one of the people arrested. The other Hong Kong businessman arrested was not named. It was business as usual yesterday at Dragon Watch's Times Square office, but an employee said the manager had been absent for some time and his whereabouts were unknown. 'He has left. I don't know where he is,' the employee said. Kowloon Watch Company managing director Wong Kam-shing said the supply of luxury goods, including watches, in the mainland was limited and demand was high. 'So there is room, and a large one, for smugglers to explore,' he said. Last year, Hangzhou police began checking the operations of several watch dealers in Taizhou and Yiwu cities who sold luxury products 30 to 40 per cent below market value. Investigations led to a young man in Dongguan who mailed watches as 'metal products' to Zhejiang dealers. He had a brother and a friend who were drivers who smuggled watches from Hong Kong to Dongguan and took a cut. Hangzhou police said Mr Yeung, the Dragon Watch director, had also hired smugglers to transport watches to Shenzhen. They said eight other registered watch dealers in Hong Kong were involved in the network 'to different extents'. High taxes on luxury goods mean an Omega watch imported into the mainland for about 26,000 yuan is taxed about 16,000 yuan and sold retail for about 60,000 yuan. Hong Kong police declined to comment on the case.