Watchmaking in China

Chinese pride restored


January 2018

Chinese pride restored

To understand the China-related upheaval that is affecting the watchmaking microcosm, we need to step backwards a pace to grasp the depth of the reforms being undertaken in that country. One notable effect is a wave of patriotism that is now influencing buying behaviour.


et’s start with a few figures: of the 10 principal container ports in the world, seven today are in China. On land, Xi Jinping’s government, which has been returned to power for five years, is preparing to invest up to 900 billion dollars in the countries crossed by the new ‘Silk Road’.

In the province around Beijing, a new scientific, technological and economic centre is emerging. The country’s richest province Guangdong, surrounding Hong Kong and Macao, has several cities which are enjoying keen growth. The population of this area is twice that of Tokyo and ten times that of San Francisco... This development is being aided first of all by massive investment in the infrastructure: 1,100 kilometres of railway line by 2020 to the north and 10 to 12 new high-speed rail links between the cities to the south.

Chinese pride restored

In parallel to this, a clean-up is going on in Chinese conurbations in response to the deep discontent of a population exasperated with the suffocating emissions of CO2. And China is moving fast… into new energies, such as electric cars, of which it is the world’s largest producer today, while at the same time taking precautionary measures against real estate bubbles, an inevitable side-effect of growth.

“Above all, China is looking to reinforce its position in world business. That wasn’t a given. It tended rather to focus on its own destiny – a bit like Switzerland!” explains Jean-Jacques de Dardel, the Swiss ambassador to China. “That’s resulting in greater multilateralism, a positive view of free trade and the fight against global warming and protectionism.” After a century of humiliation, Chinese pride is back.

What does that mean for the watchmaking industry?

In actual fact, the opportunities remain impressive. You don’t turn your back on China. Even if it is going through a ‘growth crisis’ which is driving reform, neither India nor Brazil will replace the Chinese middle class as champions of consumerism. And unlike what we often read, underscores Jean-Jacques de Dardel, “the Chinese economy is in good shape and its growth is continuing better than anticipated. It will stabilise this year at 6.8%. The IMF’s forecasts have been revised upwards and foreign investment is growing ... Today, with growth at 6.5%-7%, China adds the equivalent of 1.5 to twice all of Switzerland to global wealth every year!” The sound health of the Chinese economy in general is due chiefly to an improvement in the health of the Chinese industrial sector, the driving forces of which are electronics, metals, the automotive sector and machinery.

What about watchmaking? In terms of Swiss exports to China, chemicals and pharmaceuticals top the list – but watchmaking now stands second, having overtaken machine tools thanks to a very strong recovery by watch exports! “That is set to continue with the move upmarket of China, which is in need of increasingly sophisticated products and services,” Jean-Jacques de Dardel believes. “Retail sales grew more than 10% during the first six months of 2017.” Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry, tones down this glowing tableau somewhat: “During the first six months, exports to China grew 21%, which together with the United Kingdom was the largest contributing factor to something of a recovery by the industry. But Hong Kong is stagnating at 0.5% and Singapore at 0.4%.” Moreover, the figures need to be taken with a pinch of salt, because they express growth on the basis of a very good year, 2016 having been very bad and industry having fallen back to its export levels of 2011.

But even so, the watch trade still seems to be shifting more and more from Hong Kong and abroad to mainland China... The Chinese watch industry itself is benefiting, as its representative enthusiastically underscored when we met him at Hong Kong’s Watch and Clock fair in September (read more about the upmarket move of the Chinese players on p. 26). “Profits and watch quality are improving. Last year, more than 300 million watches were exported, a rise of 11.78%. The main challenge lies in persuading people to wear Chinese watches!”

What future for Hong Kong?

To get a better idea of the future of the watch sector in the former British colony – historically the number one market in the world for the Swiss watch industry – we met Francis Gouten, the former CEO of Richemont Asia-Pacific, who has lived in Hong Kong since 1980.

Francis Gouten, former CEO of Richemont Asia-Pacific
Francis Gouten, former CEO of Richemont Asia-Pacific

“Hong Kong had become the hen laying the golden eggs, taking advantage of the boom and the huge influx of capital and Chinese visitors, with retailers like Chow Tai Fook, which today owns 2,000 boutiques! The brands also seized the opportunity, but opened too many outlets, including in mainland China. They rushed into the breach without a thought for when it was going to stop. Xi Jinping has pulled the plug on corruption. All that began with the new social media: we saw photos with luxury bags and watches at the Communist Party’s annual congress…” Gone are the days when you might find the keys to a Mercedes in a traditional moon cake, a gift from some big shot...

At the moment, a restructuration of the distribution network is taking place in Hong Kong. When they’re not closing outlets, giants like Chow Tai Fook or Emperor are tending to place greater emphasis on jewellery. “Jewellery is the new lucrative market, because there’s a new class of working women, who aren’t married and are buying for themselves,” points out Francis Gouten.

At the same time, Chinese buyers have matured, the specialist goes on. “It’s turning into a market like any other, and watchmakers have to accept that! Today, wealthy Chinese, but also the middle classes, are spending more and more money on ‘experiences’, just like in the western world. Before, the prime reason for travelling was to buy; now, it’s to discover other cultures.”

“China needs Hong Kong: even if the political reins are being tightened, Shanghai isn’t going to replace it as a hub of haute horlogerie.”

But can Hong Kong continue to be the main market for Asia where watches are concerned? Yes, Francis Gouten replies without hesitation. “China needs Hong Kong: even if the political reins are being tightened, Shanghai isn’t going to replace it as a hub of haute horlogerie. People have kept the habit of travelling to buy luxury products. Hong Kong isn’t independent, but it’s still got a fine future ahead of it.” As for Enders Lam, the president of the Hong Kong Watch Manufacturers Association, he sees the city’s future in increased sales to the local population. “We’re still a huge producer and consumer of watches, despite the economic instability. It’s also a question of investing in new forms of production, such as smart watches, and being more competitive.”

His colleague Harold Sun confirms that the ‘golden decade’ from 2004 to 2014 when visas from China were abolished is now over, a result of political tension between Hong Kong and Beijing, the anti-corruption campaign and the currency rate. But he is noticing a slight upturn in the market, now that relations with China are improving and the Hong Kong dollar has fallen: “The retail trade is stabilising and inventories are falling. The Hong Kong retailers are doing more to attract a local customer base and establish partnerships with Chinese dealers.”

A trip to the fair – in Hong Kong

Chinese pride restored

The market evolutions set out in this feature were blatantly evident at the last edition of the Hong Kong Watch & Clock Fair in September: local suppliers presenting their own brands, increased presence of players in the new smart technologies, doubting retailers, confident mainland Chinese watchmakers…

But despite that, some Swiss brands too! Most of them were grouped together in the SIWP pavilion. Anonimo, was one example, more upmarket than the average exhibitor at this fair, but hoping to tap into the Chinese market and Hong Kong before the end of the year – and receiving interesting visits from potential agents in Russia and Australia!

As for Adriatica, it has been attending the fair for more than nine years: “You have to be present over the long term to succeed. But China is a still a complex market for doing business. The principal objective is still to develop distribution in Asia, but we also sell directly at this fair. And we take the opportunity to meet our suppliers.” On the final day of the trade show, direct sales were booming, including on the stand opposite, at Mathey-Tissot. “Our key market remains the Middle East. Its representatives come to Baselworld, but also to Hong Kong. For example, last year we made inroads into Oman thanks to this fair. What we’re noticing this year is that customers are not ordering lower quantities, but cheaper watches. At the moment we’re in discussions about openings in Vietnam, China, Indonesia... They just have to be nailed yet.”

With an output of 50 watches a year, WatchE is staking everything on direct sales, while at the same time looking for a local agent in Hong Kong: “The Japanese are possibly more in my line because they’re more mature where watches are concerned than the Chinese!” The last word goes to Amarildo Pilo of the eponymous brand, who brought these brands together in the SIWP: “For over ten years my priority has been mainland China, where I post 60% of my sales today. My Chinese partners come to see me at the fair, but I also meet people from other markets, such as India, Japan, South Korea, Turkey and Russia. When you’re grouped together in a joint Swiss pavilion like here, you attract three times more visitors than if you exhibit alone.”

Finding a new balance between a confident mainland China and a doubting city of Hong Kong in the face of changing buying behaviours – that’s the challenge awaiting all watchmakers, whatever their price range…