Mon, 18 Oct 2010

China on the Rise: Exploding Economy with a Fantastic Future (Part Two)

Jewelry Shanghai 2009

In the second installment of his two-part feature, John Pollard moves away from China’s
tremendous retail potential and examines the country’s diamond grading industry.

There are many gemological labs in China. Among
them is the National Gemstone Testing Center (NGTC).
This is a body with great presence and power,
particularly in cities near the coastline. In addition to
laboratory grading services, the NGTC is also able to
function as the “policing agency” for lab standards.
With the authorization of the Administration of Quality
Supervision, Inspection and Quarantine, any store
with foreign grading reports can be entered by the
NGTC, which can remove items for inspection and
testing in its lab. Upon testing it’s possible for those
goods to be downgraded, in which case the store must
pay a fine and negotiate to get the penalized goods
back. In extreme cases, the store may be reported in
the press for using “unreliable foreign reports.” For
all of the incredible growth in China we should not
forget this is a one-party Communist country.

In recent years, Chinese professionals have been
voicing concerns about over-strictness by the NGTC.
Some believe the agency is raising standards to make
all foreign labs seem soft by comparison. Whatever
the case, buyers who purchase ungraded polished
diamonds in Antwerp or New York, which all parties
agreed were, for example, G/VS by internationally
accepted standards, are frustrated when the national
laboratory grades them lower. This practice is causing
more Chinese diamantaires to turn to foreign reports
that, in turn, causes the NGTC to become even more
aggressive. It is a Catch-22 with no easy solution.

Compounding the issue is another interesting
phenomenon: some Chinese consumers will seek
foreign reports automatically, based on the notion
that foreign-purchased products are inherently
“better.” This is not jewelry-specific. Those same
people would rather purchase their Sony camera in
a western airport rather than at home. Why? Because
they feel there is a better chance the camera came
from the authentic Sony factory in Japan, rather than
the Sony factory in China. This way of thinking is not
uncommon, which helps to explain the success and
growth of foreign labs in the Chinese jewelry sector.

The Gemological Institute of America is well regarded
in China. It does not maintain a grading laboratory in
the country, but its schools in Hong Kong and Taiwan
have provided instruction to Chinese gemologists for
more than a decade. Many stores franchised on the
mainland have headquarters in Hong Kong, and the
Taiwanese are permitted to have businesses in China,
even amidst political strife. As a result, significant
jewelry business knowledge and management has
come into China from those schools, bringing the GIA’s
positive reputation and influence with it. GIA is seen
as the “American lab” in China, and enjoys a position
of prominence based on reputation and history.

The GIA faces challenges, however. Chinese jewelers
are complaining about grading inconsistencies, blamed
on GIA’s expansion into India, Botswana, South Africa
and Bangkok. As this perception spreads, it may injure
the lab’s historic reputability, especially in contrast to
possible downgrading at the NGTC.

I was also surprised to find no GIA booth at the
Jewellery Shanghai show. Other labs of prominence had booths staffed by officials who could listen and
react firsthand to client comments. Trade gatherings
are wellsprings of communication and a lack of
presence by a notable body can leave constituent
concerns unresolved.

The International Gemological Institute (IGI) occupies
the same building and floor as GIA’s school in Hong
Kong. The IGI has a full grading laboratory, which it
opened in 2004. IGI Hong Kong entered the market
predominantly with “Hearts & Arrows” reports and
is widely viewed as the H&A authority in China. Its
services are largely considered on par with GIA but
more cut focused. Customization and brand-specific
reports developed for proprietary cuts (such as the
Leo and others) have fostered a positive perception,
as has an array of consultation services such as gem
and treatment identification, color-only or clarity-only
analysis, etc.

The Hong Kong lab uses its proximity for professional
advocacy in China, leveraging global resources to
provide localized education. For example, the Chinese
import a significant volume of rough, providing jobs for
thousands of diamond polishers. IGI saw the need for
coursework in rough analysis, developed a curriculum
and now offers seminars on the subject. It also brings in
guest speakers on a regular basis. Such initiatives have
built goodwill among Chinese jewelry professionals
and explain the rapid growth and popularity IGI Hong
Kong has gained there in a short time.

The IGI also faces challenges. Its consistent grading
may suffer if the national lab continues to escalate
standards. While IGI enjoys a notably strong
reputation in the greater Asia-Pacific region, its
dominant focus there is loose stone grading reports.
There is a different perception in America where 90
percent of IGI activity is finished jewelry appraisal
reports, which are, by nature, treated differently.

Jewelry Shanghai 2009

Synergy

The common thread running through my professional
interactions in Shanghai was the intense and positive
“vibe.” Mining house leaders, suppliers, laboratory
gemologists, traditional sellers, online specialists,
authors of gemological journals, even reporters from
everyday media eagerly participated in the two-way
exchange of ideas and information. Their interest was
not clinical, it was energetic and infectious. I know
such synergy exists in America during “booming”
times and fervently hope for its return here, and
not just in the jewelry sector. For China I hope continued prosperity and modern entrepreneurship
will engender a climate where greater freedom of
expression and autonomy is permitted.

When William Shakespeare coined the phrase
“the undiscovered country,” he was describing the
exanimate unknown. Contrary to the Bard’s usage, I
apply it to this live, thriving, beautiful culture, both
ancient and modern. I believe China’s “undiscovered
country” is poised to dazzle us with growth and
prosperity on a scale as impressive as the artistic feats
we witnessed at last year’s Olympic ceremonies.

Many citizens in our global village remain unaware of
the magnitude of what is happening in China, but the
world’s most populous country is undeniably on the
rise. A year from now the big picture might not be much
different, but 10 years from now I’m confident aspects
of its growth will have had worldwide resonance. This
raises the question: what of 100 years from now? I may
not be qualified to answer, but I know what strikes me
as most compelling about the Chinese people: where
the goals of many westerners are focused on achieving
today or tomorrow, this culture is marching in lock
step toward societal goals that are yet centuries away.
Not surprisingly, this is in keeping with the Middle
Kingdom’s strongest historic traditions. ■

by John Pollard, US Account Executive
Infinity Diamonds

* Part One first published in IDEX magazine, November 2009 – Reproduced with author’s permission

Click here for Part One

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