Current events in the diamond trade are unsettling for India. India has long had a majority in the diamond polishing and cutting business, but now a new player, China, is starting to upstage them. The new competition from China represents a huge threat to India’s diamond industry, which is currently at 60% of all diamond finishing business. In an economy that is tight worldwide, the diamond industry represents an economic segment that is both appealing for wealth preservation and the creation of jobs. As the threat grows, more measures are being undertaken in India to preserve an industry for their country that has helped them to gain a financial foothold in tough times.
India’s Share
It may seem hard to believe, but India completes 60% of the diamond cutting and polishing business worldwide. The main city of Surat, in western India, is where diamonds are imported as rough diamonds, worked on, and subsequently exported as fine cut gems. About half the diamonds exported from India originate in Surat and estimates for this city are that this industry alone employs approximately 700,000 workers. Multiply that by all the other commerce going on in India in the gem cutting and polishing business and it can be seen that this represents a large financial boon for India. In fact, the number of diamonds cut and polished in India that were exported in 2009 is estimated to be worth in U.S. dollars near $17.5 billion.
China’s Growing Competition
In comparison, China only exported $3 billion dollars of diamonds billion annually. Since China is not a large producer of diamonds, it has to import diamonds from Africa, just like India. Going by their increased appetite for rough diamonds, it’s obvious that they plan on increasing their share of the market with Beijing as a new center for diamond cutting and polishing on the horizon. At the same time, they hope to crowd out other competitors by contracting for large supplies of rough diamonds directly from their source, Africa.
Word has gotten back to India’s main diamond players that the Chinese government has begun to initiate multi-billion dollar deals for rough diamonds in exchange for things that China produces like medicines, oils, and industrial goods and services. Their investment in Africa represents a large threat to the Indian diamond cutting and polishing industry as the demand for diamonds increases, prices go up, and supply dwindles for other major players. For this reason, India is taking measures to create similar barter exchanges between African countries and India too.
Why Diamonds are Attractive as Investments
Diamonds tend to hold their value as a source of wealth preservation on worldwide markets, even as currencies fluctuate. They represent a natural resource that is easily transportable and exchanged for other goods and services. Rough diamonds represent an investment that can be upgraded when the stones are cut and polished and resold on the retail market for higher prices. In addition, the work to cut and polish a stone requires skilled labor that makes for good wages and employment in the country that do this type of work.
Unlike India, China has a rising middle class that is increasing demand within it’s own borders for diamonds. Many of the diamonds will be exported, but many will also be sold to consumers within the Chinese economy. This will help to preserve the wealth of the Chinese economy even as it generates jobs. In exchange, the Chinese government can export workers to countries like Africa that require help in setting up infrastructure to increase their own country’s potential for future growth.
While the Chinese do not export as many diamonds currently, the growing demand for finished diamonds from an increasing consumer base has given India some source for rejoicing. In the past year, India exported US$6.6 billion of diamonds to China. Even as the growing cutting and polishing industry represents a threat, the growing consumer base is a temporary boon to India too. India would like to be a part of this growing commerce, and thus will take steps to ensure its supply of rough diamonds, even as China increases their investment in this area.
What will happen to prices worldwide as these two players battle it out? It could mean a rise in prices for consumers in the United States as more Chinese citizens step forward to take part in the market. If China does manage to lock up the supply of diamonds with many multi-billion dollar contracts then it can set its own prices, as the competition is unable to compete. Whether that means they will lower or raise prices, depends on what market strategy they opt to take. Either way, the industry is going to experience a shake-up as this massive player invests heavily in rough diamonds for years to come.