Recent reports indicate a notable surge in the sales of jewelry and watches in Hong Kong, reaching the highest levels since 2019, despite a general slowdown in the growth of China’s luxury goods market. Amid heightened scrutiny from the Chinese government regarding overseas investments, affluent Chinese individuals are increasingly turning to gold and gemstones as a means of preserving their wealth.
According to the latest data from the Hong Kong government, the sales of jewelry, watches, and luxury gifts saw an impressive year-on-year growth of 22% in the first nine months of this year, totaling HKD 45.8 billion (approximately USD 5.8 billion). This growth significantly outpaces that of the overall retail industry, with the jewelry sector accounting for about 15% of Hong Kong’s total retail sales.
This shopping spree in Hong Kong highlights a significant shift in consumer behavior among Chinese buyers, who are now prioritizing wealth preservation over wealth accumulation. The Chinese government’s crackdown on capital outflows has made it increasingly difficult for mainland residents to invest or store wealth overseas through traditional channels. As a result, gold and gemstones have emerged as some of the few viable assets for hedging against risks, with physical gold being widely regarded as a reliable store of value that is less susceptible to the fluctuations of regulatory policies.
In light of the Chinese government’s intensified scrutiny of the taxation of wealthy individuals’ overseas assets, Hong Kong’s jewelry sales have maintained double-digit growth in the most recent quarter. In contrast, luxury consumption in mainland China has plummeted by over 10%. Factors such as the strengthening of the renminbi and Hong Kong’s tax-free advantages have increased its allure for Chinese shoppers, further fueling a robust recovery in tourism.
In the first nine months of this year, the number of visitors to Hong Kong grew by 12%, with the vast majority hailing from mainland China. This figure has rebounded to 87% of the levels seen in 2018, a period before Hong Kong experienced years of political turmoil and COVID-19 lockdowns, marking the strongest post-pandemic recovery for the city.
Manna Wang, a sales agent in Hong Kong, emphasized the rising demand for certainty among consumers concerned about recent changes in tax policies. “People are increasingly seeking assurance that their wealth will not experience drastic fluctuations in the future,” she noted. “High returns are no longer the primary consideration.”
Wang has observed a notable shift among her mainland Chinese clients, who previously sought her advice on high-return insurance products but are now asking her to accompany them in purchasing gold jewelry. Additionally, these clients are beginning to favor fixed-income insurance products that offer lower returns yet lighter tax burdens.
Wang mentioned that some of her clients are spending up to USD 15,000 on gold purchases at jewelry stores. The attractiveness of these acquisitions is driven by the strengthened renminbi, making currency exchange rates more favorable, along with Hong Kong’s tax-exempt status. Thus, jewelry prices in Hong Kong could be more than 5% lower than those in mainland China.
Alexis Bonhomme, CEO of luxury consulting firm Trinity Asia, remarked, “High-end jewelry and gold provide a sense of security and possess enduring value. Wealthy clients are prioritizing goods with intrinsic value that can retain their worth over time. While they are cutting back on seasonal fashion purchases in mainland China, they are willing to allocate substantial budgets for high-end jewelry and gold when traveling, viewing these items as tangible assets.”
In recent months, the Chinese authorities have imposed restrictions on mainland companies listing in Hong Kong, tightened controls on offshore stock trading, and heightened scrutiny of foreign trusts and insurance products. Tax officials across China are ramping up efforts to increase tax collections from the country’s wealthiest individuals and largest corporations. They have amended regulations concerning offshore trusts and initiated one of the largest tax recovery operations targeting domestic companies in years, focusing specifically on the over USD 17 trillion in wealth that Chinese residents hold in Hong Kong.
In another report from late September, Bloomberg revealed that the Chinese tax authority has established special task forces dedicated to tracking down wealthy individuals for tax collection, with some groups specifically targeting single billionaires. China’s super-rich have enlisted significant numbers of lawyers, tax advisors, and consulting experts to minimize their tax burdens, prompting the formation of these government task forces to counteract their efforts. According to insiders, these teams consist of local officials, enforcement experts, and even regulatory personnel.
The report also indicated that the wealthiest individuals in China must settle their overseas trust-related tax obligations by late October, or they risk incurring additional penalties. This situation has stirred panic among the wealthy, who are urgently seeking to understand their tax liabilities and how to raise funds for payment.
Some Chinese citizens are reportedly in a hurry to obtain foreign passports, fearing that Beijing may soon impose an exit tax on those moving abroad. Others are liquidating stocks or seeking large loans overseas to navigate this tumultuous landscape.
As the Chinese government intensifies its tax collection efforts, the country’s economy remains burdened by a prolonged slump in the real estate market, which has severely impacted local government finances. Land sales revenue, which previously brought in over USD 1.1 trillion annually for local governments, is now expected to fall below a third of that figure.