Asia puts the sparkle back in diamonds

The arrest of Indian traders in China has underscored not just China’s ascendancy in the diamond trade but also the decline of Western markets and the rise of Eastern ones.

Crowding the busy Mini Bazaar street on the Varachha road in Surat, small time diamond traders have a new topic to gossip about—the Land of the Dragon. The hot news centres around the 12 or so Indian diamond traders who were arrested and then recently released from a detention centre in Shenzhen, China. Yet, instead of becoming enraged about the incarceration of their brethren or being deterred from visiting China, these traders are actually trying to figure out how to do business with the country.

The case of the arrested traders has also unearthed some startling new trends in the global diamond market—changes that have large ramifications for the industry in India.

Let’s rewind a bit. On January 8, 2010, 22 diamond traders from India were arrested in Shenzhen, China and charged with smuggling diamonds worth $7.3 million. After almost two years, about 12 of the detained returned home to India after being released while the Shenzhen Intermediate People’s Court had sentenced ten of the traders to prison terms.

Received with garlands and loud cheers from family members and friends, the traders were reportedly grateful to both the Indian embassy in China and the Ministry of External Affairs of the Government of India for their efforts. “Almost every month, representatives of the Indian embassy would visit my son and the others who were detained. It was their persistence that helped the 12 of them land on the Indian soil again,” says Pratima Shah, mother of Parth Shah, one of the 12 traders who returned home.

But to a country that is more used to hearing about China’s heavy-handed ways, Pratima Shah’s next statement elicits near-disbelief. Not only did Mrs Shah rubbish reports of torture in the Chinese detention centre, she says that in fact the jailors took special care to ensure that their captors were well looked-after. “Reports are doing rounds that they were tortured and offered non-veg food but those are untrue. Yes, they were kept a detention centre under house arrest. But vegetarian, and especially Jain food was made available to Parth and other traders,” she adds.

But what were so many Gujarati diamond traders from Surat and Mumbai doing in China in the first place?

One answer to that question is that China is fast emerging as the next big centre for polishing diamonds. Doing business there is so effortless that many traders are even eschewing Surat for China. Vasant Gajera, founder of city-based Laxmi Diamonds, is very clear about why he decided to establish his second unit in the country. “Lack of harassment is the answer. Unlike in India, setting up a business in China is almost child’s play now,” says Gajera. “One can set up a diamond processing unit one night and pull it down the next day without losing anything. That’s because almost all kinds of infrastructure, including labour, is provided by the Chinese government, while in India, it takes months to avail one facility, leave alone several others,” he adds. Gajera runs diamond processing units both in Surat and China with his brother Chuni, and says that thanks to China, he has been saving processing costs by 30-40 per cent.

Quoting a recent KPMG report, Chandrakant Sanghvi, regional chairman, Gujarat, Gems & Jewellery Export Promotion Council (GJEPC) says that by 2015, China will emerge as a strong player with 21.3 per cent of the diamond processing share. “Diamond processing and jewellery units have been flourishing for a few years now in China,” adds Sanghvi.

One of the main reasons for this trend is the growing domestic demand in the country. “In fact, India and China together will emerge as a market equivalent to US market by 2015,” says Sanghvi, adding however that the demand has not popped up overnight. “Even before the economic slowdown hit the US and European markets, which together once commanded 80 per cent of diamond market, demand was gradually growing both in India and China. In the last five years, demand for diamond jewellery has travelled from southern India to almost all parts of the country. Today, even youngsters buy diamonds from their own pocket money. And in China, the nation forayed gradually into every sector including diamond processing and jewellery thereby creating demand for the same,” explains Sanghvi.

The timing couldn’t have been more fortuitous. “So from 50 per cent, the US market is dropping and will reach 35 per cent by 2015. Similarly, even Europe is also seeing a dip in its share from 30 per cent to 15-20 per cent. Hence, led by China and India, the other Asian and a few African countries are witnessing a growth in demand,” Sanghvi adds. In the next few years, demand for diamonds will grow 20 per cent annually in China and India, representing half of global growth in demand. In 2010 itself, consumption in China was up 25 per cent year-on-year.

The Indian traders who were arrested there were not simply exploiting a fast growing market. “The ones who were detained were trying to avoid paying the 14 per cent import duty that is levied on polished diamonds into China,” says a Surat diamond trader. Apparently, these traders were taking advantage of India’s free trade agreement with Hong Kong which allowed them to get them into Hong-Kong for no charge. They then smuggled these diamonds into China in a bid to sell them to jewellers there sans the 14 per cent levy.

Now that the smuggling fiasco is behind them, the Indian diamond industry in Surat is once again eyeing China with renewed interest as both India and China gird up for the biggest boom in diamonds in Asia in recent memory.