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Swatch doubles down on diamonds, even as the Chinese shun bling

Best-known in the West for its line of affordable and brightly colored plastic watches, Swatch Group AG is also a major player in the world of high-end time-pieces, through brands such as Breguet and Omega. That’s something to keep in mind amid today’s word that Swatch will buy the jewelry and watch unit of Canadian luxury diamond firm Harry Winston for roughly $1 billion.

The acquisition—Swatch’s biggest since the 1980s—will give Swatch a bigger footprint in the world of luxury jewelry, which has been buttressed in recent years by surging growth out of Asia. It will also help ensure important access to pipelines of rough diamonds. In November, Harry Winston—which is set to change its name to Dominion Diamond Corp. once the sale of its jewelry unit closes—bought a share of a Canadian diamond mine from BHP Billiton. And it also owns 40% of a Canadian diamond mine called Diavik with Rio Tinto. 

Robert Gannicott, chairman and chief executive of Harry Winston, told the Financial Times that the freshly spun-off Harry Winston jewelry unit would continue to have access to its diamonds, and those distribution channels may be expanded under the Swatch deal. Bloomberg reports that Swatch is the “biggest purchaser of polished diamonds.”

Securing the stones for bling-heavy watches is surely key for Swatch. But at the moment, it seems that more bling might not be what the Chinese market demands. In its pre-announcement of full-year results this month—the numbers were better than expected—Swatch nevertheless hinted at softness in greater China. And it’s no wonder. “As much as 60% of expensive watches in China are gifted to officials,” Franck Giacobini, Asia Pacific director for luxury watchmaker A. Lange & Söhne, recently told the Australian Financial Review.

With China in the midst of a delicate power shift, outward displays of extravagance from officials seem to be out of favor. Indeed, diamond encrusted watches have become something of a flashpoint for anger at corrupt officials in China.

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