China's Luxury Challenge: Narrowing The Domestic-Overseas Price Gap

Finance and Trade
28/04/2016 08:01

When it comes to buying luxury goods, including diamond jewelry, Chinese shoppers prefer to buy abroad rather than at home for simple reasons: they are cheaper overseas and the likelihood of them being just a good imitation is close to zero. But Premier Xi Jinping’s government wants to create a consumer-driven economy, with shoppers buying at home. To achieve this aim, writes Avi Krawitz in Rapaport, the administration raised taxes on jewelry and watches bought from online overseas websites. Meanwhile, such items bought at home come with sharp tariffs attached.

"Lowering those taxes would help narrow the price gap between similar products sold in Chinese and overseas markets, and would also encourage domestic consumption," writes Krawitz. "For now, Chinese shoppers continue to look for alternatives." The Chinese government "needs to incentivize domestic consumption rather than discourage overseas purchases. The two are not mutually exclusive. Chinese outbound tourism will continue to grow regardless of shopping patterns as the middle-to-upper income population seeks newer experiences. But they’ll continue to shop while having them. The decision to raise taxes on cross-border e-commerce perhaps symbolizes a misguided approach. To further encourage domestic consumption, particularly of luxury goods, the government should lower taxes and duties associated with such products, and encourage retailers to set prices that are competitive globally.

"That would enable better domestic sales while tourist traffic will continue to rise. It would certainly be a bonus for the diamond and jewelry industry, which can capitalize on such double-edged growth. In that way, Chinese consumers will continue to hold the key to diamond and jewelry industry growth - even through the country’s difficult economic transition," he concludes.