China is emerging as the second largest consumer market for diamond jewellery in Asia, after Japan. Ignoring the large quantities smuggled and sold illegally, national diamond sales were put at US$300m in 1995.
China is one of the few countries in the world with a complete diamond business ? boasting a mining industry, nascent cutting and polishing operations and a thriving retail jewellery business to complement the growing consumer demand. Many international jewellery companies are looking to enter the mainland market.. De Beers, the world's largest mining group, has been active in China since the early 1970s, growing to become the main player in the market.
Rising income levels have boosted demand for diamond jewellery, particularly in Shanghai which accounts for one-third of national sales. The city has begun moves to import rough diamonds from South Africa and create Asia's largest diamond trade centre in the Pudong area
Gold remains the most popular store of value in China but diamonds are now established as the second favourite jewellery type. Improved product knowledge and advertising have stimulated the desire for ownership, especially in the form of engagement rings. Mid- to low price diamonds in the range of US$350 to US$750 dominate the market. Diamonds of between 0.2 and 0.4 carats are especially popular (one carat is equal to 200 milligrams).
Although China produces some 150,000 carats a year for the domestic market, the jewellery industry relies on imports from Israel, Belgium, South Africa, Russia and Hong Kong. Most of China's gems are found in Xinjiang autonomous region, Weifang in Guangdong province and Wenchang in Hainan province. However, many of China's mines are primitive with security below international standards, making it relatively easy for diamonds to be smuggled out. Foreign technology and management skills are needed to improve operations. The extent of resources is unknown because many of the most promising areas have not been subject to modem exploration techniques. This has only served to heighten overseas interest. Two Australian companies ? Quantum Resources and Astro Mining ? have recently signed exploration rights contracts in Liaoning and Xinjiang. Former Australian Prime Minister Bob Hawke was made a Quantum director last year.
Despite greater foreign participation, many uncertainties in the industry remain.
The amount being smuggled cannot be estimated accurately, but the impact on domestic manufacturers is certainly negative. Shanghai, Beijing and Guangdong province are the largest markets for diamond jewellery, but many residents in the south prefer to shop in Hong Kong because of the greater choice available and fewer instances of fraud. Retail prices vary across the mainland and since there is no standard way of pricing diamonds, consumers are concerned about being exploited. Generally, a lack of knowledge and fear of counterfeits are holding back the market and more education and promotion is needed to increase awareness of the way diamonds are valued.
Until now, consumer confidence in the state-owned retail sector has played an important role in underpinning the market. In addition to the government-owned art and craft shops there is now an expanding private retail sector. There is no universal guarantee for authenticity which is why De Beers' promotional campaign was aimed at both the general public and he retail sector. Retailers, some of whom are still deficient in product knowledge, are being taught gem standards, valuation and selling techniques.
The Chinese government day has encouraged the creation of new diamond bourses by the day World Federation of Diamond Bourses to help educate Chinese buyers as well as introducing a higher level of control and ethical standards in the industry.
Opportunities exist for educational institutions and diamond producers, with an interest in professional training. For example, the Gemological Institute of America is preparing to enter China.
Apart from exporting diamonds directly to China, companies can also take advantage of the low labour costs to start diamond processing plants. Foreign technologies and investment are encouraged by the Ministry of Geology and Mineral Resources to modernise this aspect of the business.