Diamond Industry of China

At present, the Chinese diamond cutting industry is concentrated in three clusters: Shandong (5,000 cutters), Guangdong (12,000 cutters) and Shanghai (2,000 cutters). There are giant factories with up to 4,000 workers. 70% of them are young women from 18 to 25 years of age. The entire world believes that Chinese cutters are cheap. Indeed, about 5 years ago, their average monthly wages were $60-90, but they grew to $200 by 2007.
The main merit of Chinese women is that they are diligent and dexterous workers! The major part of factories is owned by foreign investors (from Hong Kong, Israel, Belgium, India, Thailand and other countries). As a rule, managers and top experts are invited foreigners. There are purely national enterprises, both government-owned and private. Depending on the size of diamonds, the cost of their cutting may be $10-15 per carat (three times less than in Israel or Belgium). This value is comparable to the Indian one, but as it is pointed out by experts, the quality of Chinese diamonds is higher.
In 2004, China was ranked second in the word in manufacturing polished diamonds (after India).

Jewelry Production
At present, there are about 150,000 people engaged in jewelry production. 60% of it is concentrated in two districts of the Guangdong Province: approximately 80,000 persons are working in the Shenzhen District and 40,000 in the Panu District. As one of the first free economic zones, the City of Shenzhen is neighboring Hong Kong. Shenzhen is processing 70% of Chinese gold and one-half of the manufactured products are exported via Hong Kong.

Experts point to such advantages of China as its 1) extremely high opportunities of infrastructural development, 2) low labor cost, 3) favorable Labor Code and hired labor standards, 4) all round support from local authorities. The main advantage is that workers’ monthly costs are $200; they also include social insurance, food, transportation and other expenses. However, social insurance is not obligatory in China, but the government recommends paying 30% of charges for this purpose. The standard social charge per worker is $14 a month and there are no tax exemptions for wages lower than $200. However, there are about 5% tax-exemptions permitted for wages exceeding $200. It is important that China has a 6-day working week and some of the factories work 7 days. There are only 4 holidays in a year. Overtime payments depend on the insurance content and the local labor contract. The support of local authorities is usually expressed in tax-exemptions. Thus, a two-year tax-exemption period is typical for foreign investments.
However, there are problems and the main of them is associated with scarce skilled personnel. Chinese dialects bring about additional difficulties. Experts also point to the higher than usual Chinese disposition to gambling and perplexity in emergencies.

The minimal pricing policy is a unique competition feature of the Chinese jewelry industry. Actually, the Chinese are ready to a total price war. Many Chinese companies stick to a Bo Li Duo Xiao strategy meaning “low profit margin and volume sales”.  In practice, this is a whole range of instruments to minimize prices, including Shi Dian Li (10% profit), selling at ex-factory prices, zero wholesale markups, etc. All this ideology is focused on accelerating capital turnover and reaching in this way a higher rate of profit.
It is true that some marketers have adopted the Western high-price strategy. It is employed for lifestyle products or for products sufficiently boosting buyers’ reputation.  Naturally, such products cover all import luxury goods including the jewelry made by world famous fashion houses.

There are also some gimmicks played on superstitious beliefs and associated with symbolic pricing methods. For example, if a piece of jewelry is priced at 1199 yuans, it may indicate Chang Chang Jiujiu (long and lasting); 4451 means Shi Shi Ru Yi (everything is as you wish); 518 means Wo Yao Fa or “I will have a fortune!” and 888 means Fa Fa Fa (Fortune, fortune and fortune!).

In 2005, jewelry export from China grew to reach $5 billion. Of this amount, the jewelry made of precious metals accounted for $2 billion. Diamond export is $1.3 billion (about 3.3 million carats) and pearls export is about $100 million. South Guangdong accounts for more than 55% of the export followed by Shandong, Shanghai, Beijing, Zhejiang, Hunan and Fuchien.
Vladimir Teslenko, specially for Rough&Polished