Scarce Synthetics

RAPAPORT… One phenomenon from which China still seems relatively isolated at this point is the rapid spread of synthetic diamonds. In discussions with RDR, a number of key figures in the industry and in government were dismissive of the much-touted “threat” posed by synthetics to the natural diamond market. Guo Wei, office manager of Dalumi Shanghai, said: “We are certainly aware of this issue, but very few synthetic diamonds have emerged in the Chinese market. We don’t think it will be a threat to the Chinese market in the near future. As for the Dalumi Group, we sell only natural and untreated diamonds to clients.”

Ding Ting, deputy director of the Shanghai Lab of the National Gemstone Testing Center, said: “We have encountered very few suspicious stones for further testing in our daily grading, while utilizing gemological instruments for screening. We don’t think synthetic and treated diamonds will pose a big threat to the Chinese market.”

Internet Boom

Nevertheless, this is a time of many changes for the diamond industry in China. The first change is that recent months have been a strong period for internet startups specializing in diamonds. Chen Bin, the chief executive officer (CEO) of internet retailer 9diamond.com, said that “The market share of internet sales is still small compared to traditional retail, but we predict a breakthrough next year and fast growth in following years, because this sales mode is becoming more and more mature.”

Bin’s own company is a good vantage point from which to gauge the internet’s potential; he expects company sales to reach $6.6 million in 2007. That is not yet a huge figure, but it is expected to grow as 9diamonds.com adapts to the thriving market and exploits the potential of the “website and showroom” approach that allows potential customers to examine merchandise before they buy. The company’s lavish showrooms, located in Shanghai and Beijing, are a necessary concession to customers who are used to looking up a luxury item on the internet, but are unwilling to go ahead with a purchase without first being in a room with the jewelry and assessing its dispersion and other qualities that might not be fully appreciated online. This requirement on the part of many customers may be due partly to the fact that the credit system is still evolving in China, making it difficult to return goods once they are authorized and get the purchase price refunded.

As one of the first business-to-consumer jewelry websites to open in China, 9diamonds.com has won recognition from the China Internet Association as a “popular and honest brand name for China internet users in 2007.”

New Connections

Another change with far-reaching ramifications is the Israel Diamond Institute’s (IDI) opening of a Hong Kong office. (See the article “Making Inroads” on page 62.) This, plus the addition of a Chinese section to IDI’s internet portal — which facilitates searching for buyers and sellers, sorting them by types of merchandise — appear to have gotten a warm welcome from many Chinese.

“IDI’s Chinese portal and Hong Kong office will help build a bridge between the Israeli and Chinese diamond industry,” said Bin, anticipating a reduction in the wait time for purchases, greater efficiency and improved margins for internet jewelry firms like the one he runs.

A Positive Environment

In general, the attitude of the government toward the diamond industry seems reasonably tolerant and supportive. Bureaucratic regulations and hassles do not appear to have hindered the trade of any type of diamond. Retailers in China and in diamond-exporting countries could hardly have objected to the shrinking of the value-added tax (VAT) on polished imports from 17 percent to 4 percent at the end of 2006.

The Marketplace

• 10-per-carat, good make, VS+/H-I, are selling at approximately $620 to $660.
• 6-per-carat, good make, VS+/H-I, are selling at approximately $830 to $870.
• 4-per-carat, good make, VS+/H-I, are selling at approximately $1,040 to $1,080.
• 3-per-carat, good make, VS+/H-I, are selling at approximately $1,400 to $1,500.
• 10-per-carat, good make, VS+/I-J, are selling at approximately $550 to $580.
• 6-per-carat, good make, VS+/I-J, are selling at approximately $780 to $830.
• 4-per-carat, good make, VS+/I-J, are selling at approximately $900 to $950.
• 3-per-carat, good make, VS+/I-J, are selling at approximately $1,250 to $1,350.
• 3 to 7 points, SI/G-H, are selling at approximately $290 to $400.
• 10 points, SI/G-H, are selling at approximately $350 to $450.
• 15 points, SI/G-H, are selling at approximately $500 to $600.
• Demand has increased for GIA-certified stones in very good or excellent makes.