Shenzhen Customs officials busted a major diamond smuggling ring on January 8, detaining 50 suspects, including 21 Indian nationals, following a two-month investigation. It was reported that the ring sourced diamonds in Hong Kong and hired “water men” to smuggle them into Shenzhen and distribute them to jewelry factories and dealers, who then sold them on the open market.
Approximately 150 policemen were deployed in the raid on Shenzhen’s Luohu Border Checkpoint, which is adjacent to Hong Kong. A 60-year-old Hong Kong man, identified only as Weng, who had allegedly hidden three bags of diamonds in three pockets inside his waistband, was detained, along with an unspecified number of additional suspects. The police reportedly seized a batch of smuggled diamonds, certificates and cash. Several well-known Shenzhen dealers and jewelry manufacturers also were allegedly involved in the ring.
An Open Secret
According to Chinese regulations, since 2006, the Shanghai Diamond Exchange (SDE) has been the only recognized diamond exchange in China and the only portal enjoying favorable taxation of 0 percent import tax and 4 percent value-added tax (VAT) for polished diamond imports. All diamonds imported to China that are destined for sale on the open market must be imported through SDE, and only Chinese companies that are SDE members are licensed to import diamonds under the favorable tax policy, although they can be invested in by foreign companies.
However, for a long time now, it has been common knowledge that the volume of diamonds being sold in China far exceeds the volume of SDE imports, although no official estimates of the disparity have ever been revealed. Diamond smuggling is an open secret and even though the VAT rate is only 4 percent, there are many smugglers willing to transport undeclared diamonds to avoid taxes.
The recent arrests have been the top topic of conversation among diamond industry trade members, whose reaction depends on their own activity. The companies that conduct legal business are happy about the arrests because they are tired of the unfair competition from companies that were smuggling and escaping taxes. They are pleased that finally the Chinese government is sending a loud and clear message that smugglers have to think twice if they want to continue their illegal activity. The legally suspect companies and people — even those not caught red-handed in this latest raid — are sitting on pins and needles and busily moving goods.
Some retailers who have been purchasing from the jewelry factories involved in the case are concerned that those factories might not be able to continue to manufacture jewelry in a timely fashion in light of the arrests. The general opinion is that the crackdown of the smuggling ring will encourage more legitimate business through the SDE, and a healthier market with fairer competition. In any case, it is expected the recent arrests will focus media and public attention on diamond smuggling well into the future and will profoundly influence the industry. The investigation into the ring is continuing and the value of the confiscated diamonds was still being assessed at press time.
Big Bang
From January to November 2009, consumer commodity retail reached $1.65 trillion, up 15.3 percent from the same 11-month period in 2008. The market reportedly performed well in the week from Christmas to the New Year, especially in the final days of 2009. One well-known Shanghai retail mall set a new sales record of $51.3 million during the 18 hours beginning at 8 a.m. on December 31, 2009, racking up $47,800 in sales every minute. That mall’s sales total represents a 36.4 percent increase year on year.
In the first three days of 2010, the country’s top 1,000 retailers together reported revenue of $2.16 billion, a 17.5 percent increase year on year, according to a survey of the Ministry of Commerce. Jewelry sales during the New Year soared along with everything else, with a newly opened diamond jewelry store in Beijing reportedly selling $1.76 million in goods during the first three days of 2010. Meanwhile, the demand for gold products for investment purposes also increased sharply.
NGTC Relocates Its Shanghai Lab
During a ceremony on January 15, Bi Lijun, director of the National Gemstone Testing Center (NGTC), announced the relocation of its Shanghai testing center to the SDE. The new Shanghai lab takes up the entire eleventh floor of Tower A of the China Diamond Exchange Center, providing testing and certification service of diamonds, colored stones and jewelry. It verifies the quality and importing prices of the diamonds during the Customs inspection when they are imported through the SDE.
The Marketplace
• The wholesale market has been quietly busy in preparing for the Chinese New Year sales season, which is much more important than the Christmas season in China.
• Demand is greatest for 0.30- to 1.10-carat round stones in D-J, VVS-SI, Gemological Institute of America (GIA)–certified and preferably EX cut. But the asking prices have been raised and dealers are encountering price resistance from buyers.
• Demand is also good for round and some fancy shapes in 1 carat in I-K color, SI or I clarity, to be set as jewelry pieces and sold as promotional items. There is some demand for fancy shapes of the same color and clarity, too.
Article from the Rapaport Magazine - February 2010. To subscribe click here.