19 Aug 2019
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China Market: The New Frontier
Twenty years ago, China peeped out of the iron curtain and unlocked a new frontier. Since then, a slew of government initiatives have successfully propelled China into the forefront, to give it a cutting edge as the second largest diamond processing centre, after India. By 2015, China’s gems and jewellery industry are expected to touch US $200 billion. Yet, on the flip side, China mostly handles sawables, not the bigger stones. There is no original Chinese brand of international jewellery and it is not easy for the world to communicate with China. There are also reports of China trading in blood diamonds. Aasha Gulrajani Swarup finds out if the Chinese Dragon will fly high?
By: Diamond World News Service
Feb 18 2013 1:29PM
Reference: 7616  

Twenty years ago, the Chinese dragon stirred from a deep slumber. Few would have imagined then, that the measures introduced within a historically closed economy, would lead to rapid economic growth and transform the jewellery manufacturing and the diamond processing sector, practically non-existent, into a key global industry. The Chinese stratagem created a ripple effect and today there is talk of China even challenging the Indian giant and becoming a key player in the global diamonds and jewellery sector, as a manufacturer and consumer. But more is still needed for China to become a truly first class player.

Sanjay Kothari, vice-chairman, KGK group, comments, “Double digit growth in the Chinese economy made it the second biggest economy of the world. Compounded by economic growth, China today gives a big room for consumption of luxury and thus diamonds and jewellery.”

World’s Second Largest Jewellery Manufacturer and Consumer

The rise in the number of affluent Chinese has made China the second largest jewellery-consuming country in the world, after USA. In 2011, jewellery sales in China totalled Yuan 18.37 billion (US $2.9 billion), higher by 42 per cent from the previous year, as per China’s National Bureau of Statistics. China is also the second-largest jewellery manufacturing centre, after India, supplying for a vast domestic market with exports being over one-third of industry revenue. Over the five years through 2012, revenue for the Chinese jewellery manufacturing industry grew 12 per cent annually to reach US $53.8 billion, reported IBISWorld, in its industry research report on Jewellery Manufacturing in China, as released in November 2012. IBISWorld, an Australian market research organisation has produced reports on China's main industries in a joint venture with Chinese research company A C M R. Even the diamond cutting and polishing industry in China showed growth from US $600 million in 2007 to US $2 billion in 2011. As the second largest processor of small diamonds, after India, China annually imports about US $1 billion worth of diamonds.

Says Suresh Ghevariya, of Prism International, “For China, jewellery manufacturing is a distinct traditional activity. Secondly, global promotion of trade, supported by the government was the key ingredient of China’s growth. However, diamond manufacturing is still under a curve, but growing very fast.”

Unparalleled Growth

This growth was primarily possible through the singular vision economic reforms brought about by the Chinese government, which transformed Guangdong province, a densely populated and economically backward region into one of the most affluent, along with Shandong province in the north eastern part of the country. Today, Guangdong’s provincial capital, Guangzhou, also known as Panyu, and the city of Shenzhen, both being near Hong Kong, have become production hubs for diamond and jewellery.

While the city of Panyu, with its jewellery and gemstone factories, is known as the gems and jewellery capital of China, the city of Shenzhen is a leading jewellery manufacturing centre with more than 2,000 jewellery companies, employing 120,000 workers. Shenzhen also handles 90 per cent of China’s gold, platinum and diamond processing and 70 per cent of China’s total jewellery production, besides being the biggest jewellery manufacturing centre for exports. The geographical proximity of these cities to Hong Kong has contributed to industry growth.

Paresh Katrodia, who heads Walasons, a diamond trading company in Hong Kong, says, “Most of the diamond and jewellery manufacturing factories in China are located in Guangdong province, but company headquarters are based in Hong Kong, as it makes a convenient centre for their operations. Hong Kong has an efficient system in place and easy rules and regulations. It is also a major trading centre and most Chinese dealers come to Hong Kong for negotiations on diamond supplies.”

Economic Policy Reforms

The Chinese government also supported the industry through major policy decisions-- the VAT on diamonds was reduced, Import duty on its import was abolished and so on.

“Currently, there is zero duty on import of diamonds and VAT is just four per cent. The Chinese government also created a centralised infrastructure, investor friendly policies, single window clearances, and it has set up Shanghai Diamonds Exchange, for trading in rough and polished diamonds, which has worked to streamline and strengthen the diamonds business,” says Kothari. He is the vice-chairman of the KGK group that entered China as jewellery manufacturers in 1996 and ventured into the cutting and polishing of diamonds in 2000. Today, KGK is a major producer and exporter with an infrastructure of three offices in China, 1200 workers and a presence of nine shops in retail jewellery.

Kothari says, “In the past 15 years in China, we have witnessed many changes in terms of policy and infrastructure, which have been friendly to businesses and investors. The government has been responsive to our concerns and business requirements. Their effort on infrastructure improvement and creating the environment of business has been remarkable.”

Diamond and Jewellery Companies Flourish

Chinese efforts also brought in a huge flow of capital investment from diamond companies in Tel Aviv and Antwerp. Several privately owned foreign companies, mainly from the US and Europe, set up diamond polishing and jewellery manufacturing operations in China. Indian companies also entered the Chinese market and even domestic companies were set up.

“The majority of the jewellery companies in China are American, followed by Chinese, Indian and European,” informs Ghevariya.

However, the market is divided and China has few large scale enterprises. For example, the revenue of the top Chinese jewellery manufacturing companies, like Hong Kong-based Chow Tai Fook, Shanghai Laofengxiang, Conghua Donglin Diamond and Kinye group, accounts for just 20 per cent of industry revenue and no single manufacturer dominates the market.

Katrodia says, “There are many smaller Chinese diamond and jewellery manufacturers working for these bigger enterprises. Many do the processing for smaller diamonds as there is a greater demand for smaller pieces. For these small processing enterprises, contract work is an important source of income.”

The smaller Chinese enterprises also process jewellery for the large scale domestic companies and foreign brands, among which Cartier and Tiffany are established and much sought after, especially in tier one cities. As part of the initiatives by the Chinese government, Tiffany entered China and is involved in diamond processing, manufacturing operations and high-end retail.

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