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CULTURAL EXCHANGE (HKTDC Jewellery, Vol 01,1999)

Vol.1 1999

- Cheergem Ltd

- Luk Fook Jewellery & Goldsmith Co

Cheergem Ltd

CHEERGEM Ltd is proud to call itself the world’s largest processor of Chinese Akoya pearls. This is no mere boast. Since 1993, the company has been a pioneer in China’s cultured Akoya pearl industry, many miles from Japan, the traditional home of Akoya pearls.

The process of culturing pearls by making an insertion into a pearl-producing mollusc was first developed in China as early as the 13th century. The Chinese cultivated blister pearls in the shape of Buddha. But it was the Japanese who invented the modern pearl industry at the turn of the 19th century by perfecting techniques to create spherical cultured pearls.

After starting out as a freshwater pearl farmer in 1984, Cheergem changed direction in 1992. Thomas Chan, president of Cheergem, had a chance meeting with Professor Tai, a retired mainland academic, who was involved with all horticultural aspects of Chinese Akoya pearls, then an industry in its infancy. After travelling to the Akoya pearl farming areas in Guangdong and Guangxi provinces in southern China, and re-educating local farmers on how to improve pearl quality, Chan and Cheergem have developed a new product for the international jewellery industry.

“I saw a market for reasonably priced Akoya pearls, smaller than those Japan was forced to cultivate due to high overheads,” says Chan.

Six years later, Cheergem is the largest of the handful of Akoya pearl-processing companies operating in mainland China, and employs 500 staff in Hong Kong and on the mainland. The firm processes up to 15,000 Akoya pearls per month, many of which are bought from other farms in the area, and is a wholesaler and retailer. The company has 90 counters selling finished pearl jewellery under the brand name Dongye in major department stores throughout the mainland.

Pearl sizes range from 5 to 7.5mm. In Japan’s overworked Akoya farms, production is mainly of 8-9mm pearls and prices for similar quality pearls are 30% higher than Chinese counterparts, according to Chan. Prices for Cheergem’s Akoya pearls range from US$50 to US$400 FOB Hong Kong per strand.

It is the price advantage that sets China apart from Japan in Akoya production. The US is Cheergem’s largest export market, taking 50% of the company’s pearls. “The US demands 5.5-6mm Akoyas, which are not economical to produce in Japan anymore,” says Chan.

In the past, China’s reputation for Akoya pearls was often unfavourable, despite cheaper prices. Quality was condemned and poor nacre thickness was caused by short periods of time in the molluscs. Farmers still often harvest early before the pearls have had enough time to coat the inserted shell nucleus with sufficient nacre. Market demand for lower quality is strong and cheap pearls with poor nacre thickness are saleable.

But Cheergem has been actively working with the local farmers to improve the quality and quantity of the harvests.

China’s widely publicised floods in 1998 dealt the farms a harsh blow, with much of the crop in Guangdong wiped out. But thanks to improved harvests elsewhere, Chan estimates that overall harvest quantity was 20% up last year. Cheergem’s emphasis on R&D also means that quality has shown improvement as well, with increased numbers of round pearls with fewer blemishes.

Written by Johnny Edison

Luk Fook Jewellery & Goldsmith Co

IN less than eight years, Luk Fook Jewellery & Goldsmith Co has become a significant retail presence in Hong Kong’s highly competitive jewellery market.

Starting in 1991 with a single shop and less than 20 employees, the firm has established a solid retail network of 15 outlets, catering to demand for 24K (chuk kam) jewellery and a wide range of gem-set 18K gold items. In May 1997, parent company Luk Fook Holdings Co listed on the Stock Exchange of Hong Kong.

“We specialise in chuk kam, but we also sell pearl, jade and diamond jewellery,” says business director Chan Wai-hung. Known primarily as a retailer, the company began manufacturing jewellery in 1993. It turns out 20,000 pieces of chuk kam and gem-set jewellery per month at its two Hong Kong workshops and one subcontracting operation in mainland China.

Prices for its jewellery range from HK$100 to HK$100,000 per piece, with the most saleable at about HK$10,000.

In the past year, the company has turned its attention to exports. It participated in the September Hong Kong Jewellery & Watch Fair 1998 and Gems & Jades ’98 held in Shanghai in October. “We are just beginning to export. We don’t have a target of how much yet. It’s just a small amount now, but we have penetrated the local retail market and we want to expand our business,” Chan says.

At the Hong Kong fair, the company received orders from the US and Japan. The goal in attending the Shanghai show was to gain exposure in mainland China. It also helped the company gain information about spending power and consumer behaviour on the mainland.

The company advertises heavily on the mainland and in Hong Kong, as well as in Canada, where many Chinese emigrants live. Chinese consumers from the mainland and overseas constitute an important segment of the firm’s overall jewellery sales.

“Everybody in the retail jewellery industry wants to get into China. But the Chinese Government and the People’s Bank of China maintain strict restrictions on the gold trade. If they open the market, we definitely would want to sell there,” Chan says.

For younger customers, the firm is the sole distributor of Garfield gold products in Hong Kong. The majority of its jewellery is sold with the Luk Fook or LF mark. Its innovative, fashion-oriented designs reflect trends from around the world. In 1998, the company won an award for a bracelet design at the Hong Kong Chuk Kam Jewellery Design Competition organised by the Hong Kong Jewellers’ & Goldsmiths’ Assn Ltd. The year before, it won a Quality Service Award in Diamond Month ’97, co-organised by the De Beers Diamond Promotion Centre and The Diamond Importers Assn Ltd.

While the firm’s profits fell in 1998 because of the Asian financial crisis, Chan says he expects to see a recovery in 1999/2000 because of prospects for sales to the growing number of Chinese visitors to Hong Kong.

Written by Andrea Pawlyna

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