China is now the world’s second largest economy. This massive increase in wealth has created a massive desire for luxury goods, diamonds included.
By Michael Montgomery—Exclusive to Diamond Investing News
The global economic downturn hit almost all industries with a mighty blow, but none more so than the diamond industry. Signs that the global economy is making a recovery bode well for the diamond market both in the rough and polished sectors.
“After sluggishness during most of 2008 and early 2009, the global economy has begun to show signs of a recovery,” says IDEX researcher Ken Gassman. “In particular, the U.S. economy posted a dramatic 5.9 percent growth in the fourth quarter of 2009, after generating a solid 2.2 per cent gain in the third quarter of that year. Historically, jewelry demand and GDP move together.”
This historical trend between GDP and luxury purchases is also evident in China’s growing appetite for diamonds.
China is now the world’s second largest economy. This massive increase in wealth has created a massive desire for luxury goods. In correlation with their place in the global economy, China has also become the second-largest consumer of diamonds worldwide.
The reduced dependence on the US as the largest consumer of diamonds will stabilize the market. It’s a “much healthier picture if you are not that dependent on one country,” said Petra Diamonds Ltd. CEO John Dippenaar.
Holding strong against the economic storm, China’s GDP reached 4.9 trillion dollars, an increase of 8.7 percent in 2009. This growth in GPD is tempered by the fact that because of China’s huge population its per capita GDP is still far behind the west. As the increase in wealth sees its way to a larger population base, spending on consumer goods will increase.
As the population of China becomes increasingly wealthy so goes the population’s desire for diamonds. The growth of the Chinese diamond market will surely follow the growth of China’s per capita GDP. China’s trade in polished diamond imports and exports rose 16.4 percent to $1.52 billion in 2009.
According to Rapaport reporter Julius Zheng, the Diamond Administration of China “attributed the increased imports to China’s economic growth and the expansion of its domestic jewelry market, particularly in bridal goods.”
The question for investors is: which companies stand to benefit in the growth of the Chinese market?
Mining Ventures in India
New developments from the Asian sub-continent point toward India becoming an emerging supplier for the Chinese diamond industry. India is interested in increasing their presence in the global diamond market and has been looking for mining companies to invest in its mineral wealth. Presently, only 10 percent of the country has been explored.
According to IDEX reporter Edon Ophir, an “unnamed senior official at the federal mines ministry told newspaper that Rio Tinto – through its Rio Tinto Exploration India unit – plans to invest 22 billion rupees (US$532 million) in the Bunder diamond mining project in the central state of Madhya Pradesh.” This project is not yet online and has a soft production date to begin in 2016.
Relations between the two nations have been strained since twenty-one Indian diamond traders were arrested in China on charges of illegally importing diamonds into India. Some reports have said that India would pull out of the Chinese markets.
However, “Hong Kong is the biggest export market for India’s polished diamonds. Despite the recent arrests, there will be no impact on exports from India,” said Rohit Mehta, Surat Diamond Association President. “China and India together have weathered the global economic slowdown with an increased demand in polished diamonds.”