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The Drilling Stone Wins Hong Kong’s Heart

Dec 3, 1999 9:53 AM   By Gaston D’Aquino
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By Gaston D’Aquino

Although there are no records of when diamonds were first introduced to Hong Kong, history indicates that they were already a presence at the beginning of the twentieth century. Traders operating out of Hong Kong were doing a brisk business at exorbitant profit margins; it’s reasonable to assume that some of their “spoils” translated into diamond jewelry for the ladies and daughters of these so-called “Taipans.” The sale of European-style jewelry was confined mostly to the very small foreign community and to a handful of Anglicized locals. The Chinese community, mostly Cantonese, were very conservative and diamonds did not play a big part in their jewelry purchases.

Pure gold jewelry was by far the most popular form of jewelry, followed by jade, pearls and to a lesser extent rubies and sapphires. Rubies and sapphires were accorded the poetic names of “Red and Blue Treasures” while the diamond was called by the far less romantic term, “Drilling Stone,” a tribute to its hardness.

Learning the Business

In the early 1920s and 1930s, there were only a few jewelry shops that sold diamonds; these were mostly French ateliers that catered to the foreign community. Some Chinese locals were employed as apprentices in these shops, and once trained, they either opened their own jewelry shops or moved to Shanghai, which was a far more cosmopolitan city with a large European community and a flourishing jewelry trade.

Even in those years, Hong Kong was a duty-free port. Although import licenses were required, diamonds moved freely in and out of the British Crown Colony.

There were only two or three diamond wholesalers operating in the early 1930s and 1940s. The firms of the Ipekdjian and Gregory families were among the first, and these were followed by other diamond merchants from South Africa and Holland. At about this time, some of the local jewelers started to deal in diamonds, but their primary markets were the jewelry shops in Shanghai and Beijing.

During the fall of Hong Kong to the Japanese Army in 1942, all business came to a virtual halt. A few of the diamond merchants were caught unawares and were imprisoned for the duration of the occupation. Some of the local Chinese were forced to sell their diamond jewelry in order to survive. These harsh times taught people that diamonds, which could be converted quickly into money, could be the passport to salvation.

Picking Up the Pieces

After the liberation of Hong Kong in 1945, some of the diamond merchants found their way back to Hong Kong and tried to pick up the pieces. Some of the relatives of the existing diamond merchants also established their offices in Hong Kong. The Gregorys soon had three members of the family operating in the region with Hong Kong as their home base.

Some Chinese companies started in the diamond business around this period, such as Foo Hang Jewellery and Tai Hang Diamonds. Foo Hang was one of the first companies to import diamonds in 1948 from Israel, which was then called Palestine.

Some of the retailers such as Chow Tai Fook and Chow Sang Sang took the lead in focusing more on the diamond business, and others soon followed the trend.

A few Indian firms opened offices then, but they were trading mostly in goods from Antwerp. They only went into Indian cut diamonds in the early ‘60s when the modern Indian diamond cutting industry emerged.

More Turmoil

There was a period during the Communist takeover of China, in 1948 and 1949, when there was a flood of diamonds and other precious stones into Hong Kong. The prices fell dramatically; retailers even went as far as removing their price tags, as prices fluctuated between morning and evening.

Refugees from China who cashed in all their properties in the industrialized cities, especially Shanghai, were buying diamonds and selling them in Hong Kong in order to realize hard currency.

Much of Hong Kong’s present prosperity is due to these industrialists who, using the proceeds from their diamonds, started textile factories in Hong Kong, which transformed Hong Kong into an industrial center. This is one reason why the Shanghainese in Hong Kong continue to be big buyers of diamonds.

The Duty-Free Advantage

Hong Kong’s duty-free status in the post war years helped to secure its position as the natural source for diamonds, as there was a great deal of uncertainty in all the currencies throughout the region. This continued without a break except for a short period during the Korean War, when an embargo was placed on diamonds, which was considered a strategic material used in arms manufacturing. Diamonds had to be transshipped through Macau, a nearby Portuguese colony, in order to beat the embargo.

The main markets for Hong Kong expanded to include Japan, Indonesia, Malaya, Philippines, Vietnam, Thailand and Taiwan, which became an important market when it was ousted from the United Nations in 1972. The people there lost complete confidence in their currency and were buying all the diamonds they could get their hands on. The import of diamonds was restricted in all these countries.

Hong Kong’s diamond merchants have always had very strong ties with their clients throughout the region and are very sensitive to any changes in demand or directions. In time they became the unofficial bankers for the diamond trade, providing the credit that fueled the growth of the business.

A few years ago, import restrictions and duties in many of the South East Asian markets were lowered or totally lifted. This resulted in buyers from those countries establishing contacts with diamond manufacturers from the traditional cutting centers.

As more price information was disseminated freely, margins became squeezed, and many big players from Hong Kong dropped out of the business altogether.

Making Jewelry

By the early 1970s, Hong Kong’s jewelry manufacturing sector began to take off. More small diamonds were available from India, and Hong Kong’s labor was relatively cheap. So, some retailers and small jewelry manufacturers started to invest in more modern machinery and techniques and started to export to America

and Europe.

Hong Kong is now one of the leading manufacturers of diamond set jewelry. Some of the more labor-intensive work has moved to Mainland China, in order to maintain the competitive edge, but the main trade is done through Hong Kong. Diamond factories were also established in Mainland China for the same reasons.

As we move toward the end of the century, we are on the verge of China’s entry into the World Trade Organization (WTO), which will mean an increase in the country’s trade and prosperity, but this will also mean a gradual relaxation of import duties and restrictions. What will this mean for Hong Kong? Will its duty-free status still be an advantage? Will the experience and resilience of its diamond traders help it to maintain its position?

Lo Ka Chung of Foo Hang Jewellery, who provided some of the early history of diamonds in Hong Kong, has seen it grow from its very humble beginnings to where it stands today.

He has observed that “poor people and diamonds are always plentiful.” It is only in the turning of poor people into rich people that one can hope to keep the supply of diamonds moving. That’s food for thought as our trade moves into the new millennium.
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Tags: China, Hong Kong, India, Israel, Japan, Jewelry, Manufacturing, South Africa
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