China’s diamond industry – opportunities & challenges

China is a major jewellery producer and consumption market in the world. Jewellery has become a fast-growing luxury product thanks to the remarkable economic development and the increasing consumption in the nation. Professor Li Mu, dean of Jewelry College, Shanghai Jianqiao University, has recently conducted a study of the prospects and challenges on China’s diamond industry.

Figures from the Gems and Jewelry Trade Association of China suggest that the retail scale of jewellery in China in 2016 exceeded 500 billion yuan. The compound growth rate of jewellery over the past five years was around 13 percent, making jewellery one of the optional consumables marking the fastest growth. When it comes to market composition, according to Li, gold jewellery accounted for 50 percent, and the others were jewellery in platinum/k-gold, with diamonds, gemstones, jade, pearls and others.

During the period January-June 2017, a total of US$2.621 billion worth of diamonds were traded at the Shanghai Diamond Exchange (SDE), a 28.42-percent growth over the same period in 2016. The import volume of polished diamonds from January to June 2017 was 113.69 million carats, a year-on-year increase of 29 percent; in value term, the import amount was US$1.191 billion, representing an increase of 21.6 percent over the same period in 2016.

China’s jewellery industry started alongside the nation’s reform and opening to the outside world. Its development can be summed up as four stages, according to Li.

1. Startup (1982-1993) – The industry was at the early stage of development.
2. Opening to the outside world (1993-2003) – Under the policy of market-oriented reform, foreign brands such as Chow Sang Sang, Chow Tai Fook gradually entered China market. The industry experienced a speedy growth.
3. Development (2003-2016) – Symbolised by the policy implementation of SDE and the formation of the Shanghai Gold Exchange, the diamond jewellery and precious metal product market was opened comprehensively. The industry stepped into a fast-developing stage. A large number of domestic jewellery enterprises of national brands emerged.
4. Innovation (2016-present) – This stage is symbolised by the reform at supply side and the growth of independent brands, together with financial capital, Internet and design innovation, domestic and overseas merger and expansion. The industry has stepped into a new stage where it is evolving from a jewellery power to a jewellery superpower.

He pointed out five opportunities and four challenges that are facing China’s diamond industry nowadays.

Opportunities:

1. World financial crisis and the shuffling of global jewellery industry may bring domestic and overseas merger
2. China’s economic development and structural adjustment at supply side may stimulate innovative ability
3. The structural adjustment of China’s jewellery industry might be complete first – private mechanism.
4. The propelling force of Internet and finance may help boost industry growth
5. The expansion of domestic and overseas markets – the ‘Belt and Road’ Initiative and BRICS

Challenges:

1. Foresight, strategy and philosophy
2. Policies and government policy (especially on jewellery and jade)
3. Talent and responsibility of education
4. Synthetic diamonds and consumer confidence

 Millennials, some just started their career while others becoming middle-aged, will become the largest spending group for luxury goods. Professor Li said in 2016 the millennials spent nearly US$30 billion in buying diamond jewellery in the top three markets, accounting for 45 percent of the total retail of diamonds in these markets. In the United States alone, their demand for diamond jewellery increased from US$10 billion in 2011 to US$15 billion in 2016.

He added that the millennials have presented certain consumption mode in which self-purchasing of diamond jewellery has become an important and increasingly growing trend. Diamonds purchased by them in 2016 accounted for 32 percent of the sales amount of non-bridal diamond jewellery in the States. These trends, according to Li, were completely different from the purchasing behaviour of the previous generations. Therefore, the diamond industry needs to take effective measures to keep millennials’ demand for diamonds growing.

There have been occasional reports on undisclosed synthetic melees being mixed in parcels of natural diamonds. Despite the presence of advanced synthetic diamond screening devices and technology, dishonest trading of synthetic stones is still an issue for the diamond industry. Professor Li has given insights into how to deal with synthetic diamonds in China:

1. To protect the benefits of consumers and enterprises and maintain consumer confidence by way of legislation in the world
2. To facilitate industrial specifications, to encourage collaborations between international and national industry organisations to formulate industry standards, trading rules, manufacturing practices, information disclosure, consumers’ right to know, etc
3. To strengthen technological input and research jointly-done by industry giants (such as De Beers, Alrosa and Rio Tinto) and universities/colleagues
4. To appeal to the Kimberley Process under the framework of the United Nations to reinforce the contents concerning the supervision on synthetic diamonds
5. To appeal to the industry to establish and promote a diamond tracing system, and ensure the uniqueness and authoritativeness of diamond sources
6. To unite international laboratories such as the Gemmology Institute of America, HRD Antwerp, the National Gemstone Testing Center, the International Gemological Institute, etc, for certificate standardisation