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CHINA – The Next Biggest Diamond Market Takes a Leap Forward

Although Israeli diamantaires are giving mixed reviews of the September Hong Kong Jewellery & Watch Fair, Israel’s polished diamond exports to this part of the world are definitely on the rise. Statistics published by the Israel Diamond Controller show that for the first nine months of 2006 Israel’s polished diamond exports to Hong Kong rose by 5% to $779.4 million and to China by 6% to $80.5 million. These results are even more impressive in comparison to current exports to traditional markets like the United States and Belgium.

Hong Kong is the gateway to the entire South East Asian market, which is growing continuously, but people in the know are expecting China to surpass all of the other countries in the region combined. Although today Mainland China accounts for only 4% of world diamond sales, “In 25 years time, China will be the biggest market,” said Stephen Lussier, head of marketing at De Beers. “We’ve seen in Hong Kong that as incomes go up, the diamonds just get bigger,” he added.

Fifteen years ago few in China knew anything about diamond jewellery, but today eight out of ten brides in Shanghai and Beijing receive a diamond ring. No other market has developed this quickly. According an article published in the Guardian, it took 50 years for the US to get to this level and 20 years for Japan.

Just last month the Chinese market received a vote of confidence from one of the top luxury jewellery brands, when Bulgari opened an expanded store in Shanghai. Nicola Bulgari, vice chairman of the Bulgari Group, said that Bulgari considers the Chinese mainland as one of the key markets to develop in coming years, and is considering 10 additional locations there.

The Shanghai Diamond Exchange was established in 2000 to cater for China’s rising demand. Today it has about 157 members and is a member of the World Federation of Diamond Bourses.

In July 2006, non-industrial diamonds imported through the Shanghai Diamond Exchange (SDE) totalled $7.38 million, up 120 percent over July 2005, the Economic Daily of China reported. The exchange imported 196,000 carats of polished diamonds during the first seven months of the year, a rise of 10% over the same period last year.

Diamond imports to China received a shot in the arm with the Chinese government’s decision to reduce value-added taxes on polished diamond imports from 17% to 4%, on stones imported through the SDE which went into effect this summer. Some Israeli diamantaires active in China say that the tax reduction is already having an impact on the market.

One of the results of the lowering of taxes is the entrance into the market of new international players, causing instability in the market. Carmel Lustig of Lustig Brothers, members of the SDE who have been active in China since 2001, said that some of the new players don’t yet know how business is conducted in China and are causing confusion in the market. “Some are offering credit terms that are inconsistent with the rules of the game here. I believe that they will learn by their mistakes and that the market will settle down,” he said.

Lustig pointed to another problem that is holding up the market. “There is a lot of old stock around which is priced higher than the new stock, which enjoys a 13% tax rebate. That’s a huge difference. It will take time until this straightens out,” he said.

Ilan Sasson, Managing Director of A. Schwartz & Sons, sightholders who are members of the SDE and who have been active in the Chinese market since 2002, said that the reduction in taxes on polished diamonds has changed the way many Chinese retailers are doing business. If until now few were willing to buy “officially”, preferring to do business through Hong Kong, today many more are interested in buying directly. This, Sasson said, will streamline the sales process and make it easier to do business in China.

As to growing the market, although Sasson said he does not know if the change in prices has already filtered down to the consumer, he believes that in the future reduced diamond prices will open up a greater consumer market. “Diamonds are not cheap, and have appealed only to those with higher incomes. We believe that tax change will boost the market amongst those who did not consider diamonds within their reach.”

Loaad Katzir, Marketing Manager of DTC-sightholder Yerushalmi Bros., said that the tax reduction was not yet felt in their business, which is based on a highly developed distribution network built up over 10 years in the Chinese market. Yerushalmi Bros. sells their branded diamonds -- Amorosso or Ai Meng (Love Commitment in Chinese) – to select high-end jewellers, and generic polished stones to retailers, many of them outside the major urban centres. “There has been a consistent rise in demand for our brand and for the niches we have developed. We have built up long-term relationships with our clients and their loyalty is very great. Our market is fairly stable and is less affected by trends,” she said.

Joseph Sterling : London Jewellers