May 28 (Bloomberg) -- China agreed to cut import tariffs on Swiss watches by 60 percent in 10 years as the two nations seek to expand trade, a move that may boost sales by retailers such as Hong Kong-based Hengdeli Holdings Ltd.
The reductions will take effect after the countries sign a free-trade agreement, which may take place in July, Assistant Commerce Minister Yu Jianhua said in a briefing in Beijing yesterday. The duties will be cut by 18 percent in the first year and around 5 percent in each of the following nine years, according to a transcript posted on the ministry’s website.
Hengdeli rose 7.2 percent to HK$2.24, the highest close in almost three months, in Hong Kong trading today. Chinese imports of Swiss-made watches tumbled 24 percent in the first quarter from a year earlier as President Xi Jinping’s campaign against corruption damps demand for luxury gifts and economic expansion cools. Hermes International SCA last month reported a decline in watch sales due to China, while LVMH Moet Hennessy Louis Vuitton SA, the world’s largest maker of luxury goods, said Chinese retailers have been purchasing fewer watches than expected.
“We think this will have marginally positive implications for demand” and margins, a group of Citigroup Inc. analysts led by Thomas Chauvet wrote in a report today. Still, “China’s new President Xi Jinping’s tough stance on corruption practices and extravagant spending are likely to limit the recovery of the illegitimate component of luxury demand this year.”
Swatch Group AG, the biggest maker of Swiss timepieces, rose as much as 2 percent and traded 0.2 percent higher at 580 francs at 11:28 a.m. in Zurich. Richemont, whose brands include Vacheron Constantin and Cartier, gained as much as 2.3 percent.
Chinese consumers often buy watches abroad in Hong Kong or European countries where taxes are lower. Last year, Hong Kong imported 4.4 billion francs ($4.5 billion) worth of timepieces while China imported 1.6 billion francs.
“Europe, Hong Kong and Macau are likely to remain Chinese consumers’ preferred places of purchase for Swiss watches in our view due to lower retail prices, even after the cut in Chinese duties,” Chauvet wrote.
China levies import tariffs mostly between 15 percent and 20 percent on watches, Yu said, according to a transcript of the briefing posted on the Commerce Ministry’s website.
“The trend would be that prices will drop to some extent, but we can’t tell now by how much,” Yu said of Swiss watch prices, citing factors such as other duties including value-added and consumption taxes that will remain unchanged.
Swiss watchmakers are bracing for a slowdown this year as Kepler Cheuvreux forecasts the industry’s exports may increase 5 percent, which would be the worst performance since a 22 percent decline in 2009.
Swiss watch exports rose 5.7 percent in April, the Federation of the Swiss Watch Industry said today. Shipments to China dropped 22 percent.
China will cut import duties on 84 percent of imports from Switzerland to zero, and will lower the levies on another 12 percent of Swiss shipments by 60 percent over a 10-year period, including watches, Yu said. The European nation will exempt 99.7 percent of Chinese shipments from the tariffs once the agreement takes effect, according to the transcript.
China and Switzerland signed a memorandum of understanding on concluding the free trade agreement during Premier Li Keqiang’s visit to Switzerland last week, Xinhua reported on May 24.
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