Beijing rebuffs Bern on luxury watch tax

China says the new tax will not affect demand for Swiss watches Keystone

China has rejected Switzerland's request to abolish a 20 per cent tax on luxury watches, which Bern fears would mainly affect Swiss watches.

Beijing’s response, which was confirmed by the Swiss economics ministry on Wednesday, stated that the measure was not discriminatory as it covered all watches whether manufactured locally or abroad.

The Chinese authorities introduced the luxury tax at the beginning of April on watches costing more than SFr1,600 ($1,322), leading the Swiss authorities to intervene.

The Swiss economics ministry said that it had received Beijing’s reply at the end of the same month.

In his letter to the Swiss government, Chinese Finance Minister Jin Renqing explained that consumers would still buy Swiss watches because “with or without the tax, there are no alternatives”.

He added that the tax was introduced to “reduce social inequalities in Chinese society” and that it did not break any international economic agreements.

Sales dip?

The Swiss watch industry is not as optimistic and expects the tax to depress sales. Last year exports to China reached SFr351.3 million.

According to the Swiss economics ministry’s spokesman, Christophe Hans, 99.6 per cent of imported luxury watches in China come from Switzerland. No top-end watches are made in China.

When the tax was first imposed in early April, the Switzerland-based Swatch Group, the world’s largest watchmaker, told swissinfo that their sales would be affected.

“This tax will reduce our sales in the top segment in China,” said Beatrice Howald, the group’s head of public relations.

Speaking to the Reuters news agency on Wednesday, Kepler Equities analyst Jon Cox added: “The tax… will obviously impact Swiss watch makers, particularly the Swatch group, whose Omega, Longines and Rado [brands] are market leaders in Switzerland.”

Hans told swissinfo that the Swiss Secretariat for Economic Affairs (Seco) and the Swiss embassy in Beijing would be taking a closer look at the matter, assessing the likely impact of the tax in collaboration with the Swiss watch industry.

The situation is set to be reviewed in a year’s time but is unlikely to change in the near to medium term, Hans stressed.

swissinfo

In brief

The value of Swiss watch exports to China increased by 25.7% in 2005 to reach SFr351.3 million.

China ranks tenth in the markets for Swiss watches and components.

Swiss watch exports reached a record level in 2005, with a value of SFr12.323 billion (+10.9% compared with 2004).

The Federation of the Swiss Watch Industry feels the positive trend should continue in 2006, but at a slightly sustained rate.

China was the biggest exporter of finished watches in 2005. But at 884.6 million pieces, the figure was 15% down on 2004.