2005

China’s Middle Class Fuels Diamond Demand

October 2005

The rise in disposable income among the middle class in China has created a growing niche for American diamond merchants. De Beers anticipates double digit sales growth this year in China and the company intends on opening up outlets in 17 mainland cities as part of a $16 million marketing campaign. Last year, Chinese mainland sales rose to $1.32 billion.

Luxury jewelers are taking advantage of this growing market by opening new stores in China. Cartier now has three stores in the country and 172 distributors. Louis Vuitton, which previously had a store in a hotel basement, now has an outlet in an upscale emporium.

While diamond sales in the U.S. are growing, demand for diamonds and other luxury goods in Asia are expanding at a faster pace. The growth rate in China is about 20 percent a year, compared with about 6 percent in the U.S. In addition, Shanghai is now acquiring diamonds at a rate close to the U.S.

Some of this success in the China market is due to De Beers’ marketing efforts conducted by the company and its sightholders.

The increase in demand runs parallel to the growing number of wealthy consumers in China. The country already has an estimated 300,000 millionaires, compared to 2.5 million in the U.S.

Native Chinese retailers are also cashing in on the increasing demand for diamonds and jewelry in their own country. L.J. International, which was up until two years ago a jewelry manufacturer, took the leap into retail with four stores and plans to open 100 more within five years.

The market in China, however, is not without its problems. Counterfeiting of luxury goods is rampant. In addition, Indian diamond merchants trading in Gaugzhou, China’s largest city, are joining an illegal diamond exchange that poses a threat to the Shanghai Diamond Exchange.

Overall, though, China is the market to watch for diamond sales opportunities. “Chinese customers are set to be the heavyweights of luxury good buying,” a Merrill Lynch spokesman told Financial Times.