October 20, 2009 / 10:47 AM / 8 years ago

Chinese diamond demand puts gleam back into gem trade

<p>An employee reaches for a diamond necklace at a jewellery shop in China's southern city of Shenzhen October 19,2009. REUTERS/Tyrone Siu</p>

SHENZHEN, China (Reuters Life!) - Diamonds may have lost their luster for many in the economic downturn, but China’s legions of wealthy, status-conscious customers are helping the precious gem trade glow again.

Imports of polished diamonds to the U.S., the world’s biggest diamond market, roughly halved in the first six months of the year but China’s grew nearly 13 percent to $300 million, helping buttress the global diamond trade at a critical time.

“China can’t save the global diamond industry, but at the least it can slow its decline and give it support,” said Frank Wu, head of TTF studio which crafts jewelry for top global and Chinese brands.

Rows of Chinese artisans, hunched beside green lamps, peer into microscopes and set glittering gems onto rings and pendants at Wu’s diamond workshops in southern China.

“We’re still unable to fulfill our orders. Our manufacturing lines are working overtime,” he said, adding that he plans to nearly double his workforce next year.

While part of Wu’s finely wrought wares are exported, the pickup in business is also driven by China’s surprisingly robust and growing domestic demand for diamonds, that has bucked a severe slump in global luxury sales which are expected to decline 8 percent this year, according to U.S. consultancy Bain & Co.

China’s increasingly affluent middle class and vast pool of customers are seen as key factors, with nearly 6 million couples expected to marry this year and splash out on diamond rings.

“Even in the crisis you still see growth (in China), people are still making money ... it looks like it will be a good season,” said Tsvi Pluczenik, the CEO of diamond group Pluczenik, at a leading diamond fair in Hong Kong last month.

GLITZ, GLAMOUR OF DIAMONDS

Demand for diamonds only really started to pick up in the 1990s when De Beers brought its global advertising campaign to China, tapping into the Chinese desire for conspicuous consumption and pursuit of Western lifestyle trends.

“I think most husbands understand what they have to buy to keep a woman happy, you don’t have to tell them,” said Li Li, a shopper in the upscale King Glory Plaza mall in Shenzhen stacked with many of China’s fast-growing jewelry retail chains.

Raymond Choi, a marketing manager for CHJ, which runs some 300 jewelry stores across China says it has seen an average of 30 percent growth per year since 1996, with demand steadily spreading nationwide away from affluent coastal areas.

“There are rich people everywhere in China now,” he said.

Chinese consumers have also been coveting larger stones.

Wang Lan, a vice president of the DIAMEND jewelry chain says the percentage of Chinese buyers opting for stones larger than 0.3 carats had nearly doubled from around 10 percent of its sales in 2007, but intense competition has also thinned margins.

“It’s a large market, but competition is also very ruthless ... especially on prices,” Wang told Reuters.

But while China and India -- the world’s number two diamond market and the world’s key hub for polishing diamonds -- are growing in importance, some experts say the key to a lasting diamond market recovery lies with firming U.S. consumer demand.

“(China‘s) greatness lies in its potential,” said Martin Rapaport, a prominent diamond industry entrepreneur.

“No matter how good the Chinese and Indian story is, it’s still insufficient to make up for the lost U.S. demand that we’ve seen and are going to see.”

But with China already the world’s top market for platinum and jade, and number two for gold, diamond manufacturer Frank Wu, sees no limit to China’s growth.

“In the next 10 years, China will become the world’s largest consumer of all jewelry, including diamonds,” he said.

Editing by Miral Fahmy

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