About 130 million carats (26,000 kg) of diamonds are mined
across the world every year. Of those, around 3 million carats make
their way onto the Chinese mainland to be crafted by some 20,000
workers into dazzling symbols of enduring love.
But smuggling and illegal trade has plagued the sector for many
years, prompting the Shanghai Diamond Exchange (SDE) to introduce a
value-added tax (VAT) policy recently to overcome this problem.
The government-backed move is also expected to balance the tax
burden and encourage diamond sellers to increase their
Before the new policy, the VAT rate for rough diamonds entering
the mainland through the SDE was 17 percent.
The new regulation cuts VAT on imports of rough diamonds and
polished diamonds to zero and 4 percent, respectively.
While domestic and overseas diamond companies with units on the
mainland were unable to say what the long-term effect would be,
they welcomed the new policy.
The mainland is the largest diamond cutting and polishing centre
after India, but in terms of revenue from the trade it still lags
far behind not only India, but also Israel, South Africa and
"The policy has been due for years and is definitely a positive
one that will help our import and sales and help the business as a
whole," said Dror Marom, regional manager of Dalumi Diamonds, an
Israeli company with annual global sales of US$150 million.
"It's difficult to give a precise prediction because every new
regulation needs time ... We expect our sales to jump 10 to 15
percent this year, and certainly hope the tax break will give us
some help," Marom said, adding that he hoped the move would curb
diamond smuggling, too.
"Many diamond industry players in China, including
manufacturers, retailers and wholesalers, are now likely to
legalize their business," Concept Jewellery Manufacturing Executive
Director Fiona Wong said.
And that will take the country's diamond and jewellery industry
to a much higher and more professional level, the top executive of
the Hong Kong-based jewellery processor added.
A spokesman for Wing Hang Diamond, Hong Kong's leading diamond
trading company, said the move would encourage his company to
increase investment in its existing mainland gem units.
"That up to 90 percent diamonds enter the country through
illegal channels is a great cause for concern. Chinese Customs
collect a very meagre amount of VAT because only over 10 percent
are imported through lawful exchanges," he said.
Diamonds were first recognized and mined in India, with the
earliest written reference in Kautilya's Arthasastra (The Science
of Economics - 296 BC).
But in February 2005, a joint Chinese-US archaeology team found
four corundum-rich stone ceremonial burial axes dating back to
China's Liangzhu and Sanxingcun cultures (4,000 BC-2,500 BC) that
were believed to be have been polished using diamond powder.
However China has been a late entrant to the diamond trade,
setting up cutting and polishing centres to take advantage, like
India, of low labour costs. Diamond cutting and polishing is a
highly specialized skill concentrated in a handful of cities, such
as Antwerp (Belgium), Amsterdam (the Netherlands), Johannesburg
(South Africa), New York (the United States), Tel Aviv (Israel) and
Though India handles about 90 percent of all cut and polished
diamonds by number, it accounts for only 55 percent in terms of
value. That's because larger or more valuable diamonds are more
likely to be handled in Europe or North America.
Diamonds are sold in carats and valued according to the "4 Cs"
carats, clarity, cut and colour. The carat weight measures the mass
of a diamond, with one carat defined as exactly 200 milligrams
(about 0.007 ounce).
(China Daily July 14, 2005)