Chen Nan Yang

Originally published at Colored Stone; reprinted with the author's permission.

According to China's Jewelry and Jade Association (CJJA), the total size of the Chinese jewelry market was 140 billion yuan (US$17.3 billion) in 2005. Colored gemstones, including jade, accounted for 30.6 percent of the market.

The CJJA forecast that the market would increase at an annual rate of 8 percent to 9 percent to about $26 billion between 2006 and 2010, but the increase of gold, diamond, and platinum jewelry might slow down and colored gemstones would take more market shares.

Platinum has had great success in the past decade. China's retail sales of platinum jewelry increased from several million dollars to $2.9 billion per year between 1995 and 2005. According to Sun Fengmin, the secretary-general of the CJJA, China consumed more than 60 tons of platinum for jewelry in 2005. But the market began to shrink in 2006. In the first three quarters of 2006, platinum's sales decreased by 27.2 percent in volume and by 8.1 percent in value due to its lofty price.

Gold's total sales increased 16 percent to 350 tons in 2006, almost the same as that of the "golden age" in mid-1990s. But experts said that the market would slow down, again because of gold's high price. In 2005, China consumed 241 tons of gold for jewelry.

Thanks to a flood of synthetic andOthers simulant ruby and sapphire in mid-1990s, diamond was able to enter the market in China and soon outpaced other gems. In the past decade, sales of diamonds increased from $230 million to $1.8 billion. But as the colored gemstone market resurges, more consumers are choosing colorful gemstones instead of "humdrum" diamond. Chinese jewelers also complain about the monopoly of diamond producers like De Beers, and they now count on the colored gemstone market to add their margins.

According to the CJJA, some gemstone markets, for example ruby and sapphire, will increase by 20 percent to 30 percent per year for the next five years.

China's gemstone and jewelry imports increased 30.8 percent to $3.47 billion in 2005, 3 percent of which were rough gemstones. Jewelry from the European Union accounted for 33.2 percent of imports, South Africa for 27.6 percent, and India for 8.13 percent.

Jewelry exports were $5.49 billion in 2005, only 0.5 percent of which were rough gemstones. In what has become typical for China, exports increased by 22 percent to $2.9 billion in the first half of 2006 compared with same period the previous year, 49.9 percent of which was to Hong Kong, 18 percent to the European Union, and 16 percent to the United States. But about half of Hong Kong's imports also went to the United States, so in fact China exported more than $1.1 billion of jewelry to the United States in the first half of 2006.

Sixty percent of China's export jewelry was processed in Panyu, a county in Guangdong province. Three hundred producers and 70,000 workers made a gross profit of $1.06 billion there in 2005. But some of them have begun to move to Shanghai, Jiangsu, and Zhejiang provinces to enjoy a better tax rate since their tax-free period in Panyu has ended.

Still Jade Country

Most of the colored gemstones sold in China are jade or stones considered a type of jade by the Chinese, which account for about 92 percent of the market. Ruby, sapphire, crystal, emerald, amber, cat's eye gems, and other gemstones account for about 8 percent of the market.

Of the many types of jade sold in China, jadeite is by far the most popular. China's retail sales of jadeite were $0.9 billion in 2005. Myanmar (formerly Burma) is the biggest producing area of jadeite in the world, and 90 percent of its output was exported to mainland China in the past five years.

Jadeite prices can vary widely according to their quality. One kilogram of the best A-grade rough jadeite may cost millions of dollars, but one ton of C-grade rough jadeite may only be worth hundreds of dollars.

The drying up of the jadeite mines and the Myanmar government's ban on private trade since 2005 has decreased supply. The price of high-quality jadeite increased by three to five times in the past five years. Xiong Deguang, a jewelry expert from China Geologic University, estimated that the price would be grow by triple or even fourfold in the next five years.

Jadeite investors from Yangmei -- a small village in China's Guangdong province -- bought more than half of Myanmar’s high-quality rough jadeites in 2006. For the Yangmei villagers, jadeite is a highly risky business. They call it the "Betting Stone." Usually, three or more families spend a hundred thousand dollars to buy rough jadeite from Myanmar. If the finished product is found to be high quality, they will earn back double or more in profits; otherwise, they might lose all their possessions.

But in the retail market, Chinese sellers cheat consumers by selling B- or C-grade jadeites as A-grade products. In one inspection by the Chinese government in Nanchang province, 90 percent of the jadeite in a retail market was fake. A jadeite offered for $1,000 in the retail market may actually cost only $2 to $3. Experts say that confusion among consumers may one day ruin the whole industry, though it's booming for the time being.

Yunnan, a southeastern province next to Myanmar, imported 4,000 tons of rough jadeite in 2006, accounting for two-thirds of the total imports, but most of it was low quality. High-quality jadeite was sold mostly to Yangmei, and the middle grades to Guangzhou, Sihui, and Pingzhou.

After jadeite, the most salable jades in Chinese market are nephrite jade and the host of related stones that are also sold under the umbrella name “jade” by the Chinese: agate, jasper, turquoise, xiu jade (serpentine), dushan jade (plagioclase feldspar), lapis lazuli, tiger eye, dongling stone (a type of quartz), and others.

The retail sales of these stones were more than $1.2 billion in 2006. One kilogram of high-quality rough nephrite jade is worth from $6,000 to $16,000. Agate’s prices mainly depend on the finished products. Rough agate from Brazil or native producing areas is usually worth only $2 to $4 per kilogram, but a finished 500-gram agate dragon may cost $100 to $10,000 according to the quality of its combination of nature and art.

Chinese consider turquoise to be a kind of jade. Azure-colored turquoise from Iran or the United States is very salable in the market.

The major gemstones other than jade in the Chinese market are ruby, sapphire, crystal, emerald, amber, and cat's eye stones. According to a survey on Shanghai at the end of 2004, 42.4 percent of these gemstones by volume were ruby, 18.8 percent were sapphire, 11.3 percent were crystal, 3.8 percent were emerald, 1.3 percent were amber, 1.3 percent were cat's-eye, and 21.1 percent were other gemstones.

Suffering from the downturn in the past decade, China's retail sales of ruby and sapphire were only $170 million in 2005. But jewelry experts now expect the market to grow. Sun Fengmin said that ruby and sapphire would account for 5 percent to 10 percent of Chinese market once the market become more "mature." He estimated that the retail sales of ruby and sapphire would increase to $0.8 billion in the next five years.

More than 80 percent of the ruby and sapphire in Chinese market is from Thailand, but China has been trying to produce its own gemstones. An undeveloped ruby deposit, extending approximately 10 miles wide and 60 miles long, was found near Yuan River and Nu River in Yunan province. The quality of the ruby there is on average lower than that of Myanmar.

Chinese jewelry collectors also show great interest in colored gemstones. Wang Juan, a Shanghai collector, said that her interest turned from antique ceramics to colored gemstones three years ago. The value of one of her emeralds has increased by 100 percent in the past two years. But she also said that the lack of national standards and creditable authentication institutions for gemstones might hamper the development of the industry.

Entering the Chinese Market

The growth of colored gemstones in China, experts say, will depend on linking them to different aspects of Chinese culture. Traditionally, Chinese believe that jade can bring them good luck, health, and morality. And after the successful promotion of the past decade, now Chinese look at platinum as a symbol of sincere love, and diamond as the perpetuity of marriage. If jewelers want to succeed with ruby, sapphire, emerald, amber and other "immature" colored gemstone markets, they should "introduce" a series of jewelry cultures for them.

Hong Kong Trade Development Council suggests that foreign jewelry makers should mainly focus on China's high-end jewelry market and avoid competion with the native companies on low-end markets, because they have advantage of labor costs and market channels.

Hang Fung Gold Technology Group, a Hong Kong jewelry manufacturer, started by focusing on China's high-end market. The company has been so successful that it plans to establish 200 of its 3D-Gold shops in mainland China before the end of 2010. Lam Sai Wing, the chairman of Hang Fung, said that more than half of the company's sales are already from mainland China, and the market is no doubt their future.

But Chow Tai Fook, one of the Hong Kong's most successful jewelers, seems to have ambitions in both mainland China's high-end and low-end markets. This company divides the market into two classes: the mature markets like Shanghai, Shenzhen, and Guangzhou; and the new markets, like most of the inland or small cities. Chow Tai Fook takes different tactics in different markets. Up to now, the company has had success in both markets; it has about 300 jewelry shops in mainland China and will increase 50 to 90 more shops per year.

Although taxes have been a barrier to entry for foreign companies, that is slowly changing. Some cities in China's Guangdong, Jiangsu, and Zhejiang provinces offer the newcomer jewelry producers a lower tax rate. And Hong Kong jewelers can enjoy a better tax rate compared with that of other countries, so there are advantages to establishing a subcompany in Hong Kong first.

China has also lowered its tariff on rough gemstones to 3 percent for the most favored nations in 2006. And the CJJA said that they might successfully persuade the government to reduce the excise rate on all jewelry to between 3 percent and 4 percent in 2007. With the demand for jewelry growing, for many foreign manufacturers the timing has never looked better.