Rapaport Magazine

China Market Report

Not Ready for Fancy Colors

By Julius Zheng
RAPAPORT...  Even in the metropolises like Shanghai and Beijing, very few fancy colored diamonds and diamond jewelry pieces are displayed in the windows of the large jewelry stores and most of them are different shades of yellow. In discussions with RDR, a number of key figures in the trade agreed that fancy colored diamonds are still regarded as very high-end items in China, and the market is not yet ready for them.

Ding Ting, deputy director of the Shanghai Lab of the National Gemstone Testing Center (NGTC), said, “We have encountered very few fancy colored diamonds and most of them are fancy yellow.” NGTC is responsible for inspecting all diamonds imported and exported through the Shanghai Diamond Exchange (SDE).

Young Market
The Chinese diamond market is relatively young. There is still a lot to be done to promote, educate and diversify the market. Until as recently as 1990, diamonds were scarce in Chinese stores, and rarely appeared on wedding shopping lists because consumers didn’t see them in the market, didn’t know enough about them and couldn’t afford them. In the late 1980s, the Diamond Trading Company (DTC) launched TV advertisements in China and broke the ice for the market with the famous slogan of “a diamond is forever.”

In the years since, not only have retail customers become more knowledgeable about diamonds through various channels, but also the retailers themselves, since selling diamonds is new to them, too. The small market expanded and began to diversify with the marketing efforts of various companies. In recent years, China’s diamond jewelry sales have been increasing at an average rate of 15 percent to 20 percent annually and China now ranks fourth in the world for diamond product consumption. However, the market still has a lot of room for development because it largely relies on wedding jewelry purchases. Usually first-time buyers, mostly young couples buying engagement or wedding rings, choose round and white diamonds.

Forbes recently counted 42 billionaires in Mainland China with an average age of 48 and 26 billionaires in Hong Kong. There is an emerging wealthy class of consumers in China, who might shop for a fancy colored diamond if they already own a white stone. The market could also expand with the more affordable, smaller-size, fancy light yellow and fancy yellow stones. However, no company has done large-scale promotions of fancy colored diamonds in China so far, and there are very few manufacturers and dealers selling them. For the international companies, fancy colored goods might be sold before they reach China. Treatment and synthetics can be important influencing factors in market acceptance, as well.

A More Diversified Market
For a very long period, the Chinese market for diamonds was very narrow. While Shanghai was mostly selling G to H in VS, the rest of the country was mostly selling I to J in VVS. Somehow, retail clients got the impression from different sources that diamonds out of this range were either too expensive or “not good diamonds.”

When the market becomes more educated about diamonds, it also becomes more diversified. Guo Wei, office manager of Dalumi Shanghai, told RDR that recently the company has expanded its sales of goods as high as D to E color and as low as M to N color in VS and VVS. “The market is accepting a wider range of color and clarity, and it is a healthy and pleasant development,” said Guo. “I believe education and promotion to both retailers and retail customers are the key.”

Potential Risk of Fluctuation
China faces the potential risk of drastic economic fluctuation, while tackling the challenges of soaring prices and mounting inflationary pressure, Premier Wen Jiabao said at a March 18 press conference following the closing meeting of the First Session of the 11th National People’s Congress, China’s top legislature.

In 2007, China’s consumer price index (CPI), a barometer of inflation, rose by 4.8 percent year-on-year, the highest index since 1997 and well above the government target of 3 percent.

Wen, reappointed premier on March 15, said the government’s goal is to ensure rapid yet stable economic development and at the same time effectively hold down inflation. Admitting that uncertain domestic economic conditions and world factors will make it more difficult for the government to predict economic trends, Wen said that 2008 may be a very difficult year for China’s economy and conceded that “It will be harder to make decisions.” In an earlier meeting, Wen said that, despite the uncertain economic factors, China’s economy still has potential for further development.

The government established “two prevents” as goals when mapping out 2008’s economic policies: prevent the fast-growing economy from becoming overheated and prevent structural price rises from turning into significant inflation.

The Marketplace
• Demand is good for 0.30 to 0.70 carat G+/VS+.
• 1/2 carat D-G/VS+ is popular.
• Larger stones in 1 carat+/VS+/H+, GIA certified and fine make, continue 
  to sell well.
• The market is getting more diversified and is accepting a wider range of 
  colors and clarities, but the round shape still prevails.

Article from the Rapaport Magazine - April 2008. To subscribe click here.

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