“With the establishment of the exchange and tax reduction, more than 90 percent of the illegal imports will be eliminated,” said Huang Qifan, director of the Shanghai Economic Commission.

Domestic processors are required to pay import tariffs, value-added taxes and consumption duties, which account for 34 percent of the value of uncut diamonds.

High taxes imposed on diamond processing have led to the smuggling of the gems and prevented domestic processors from selling their products on the local market.

Currently, China only has about 15,000 workers in the diamond processing industry. The smuggling of processed diamonds by jewelry retailers has held back the development of the processing sector, Huang said.

The new exchange, China's first trading center for uncut and processed diamonds and the world's 24th, was set up to stimulate the export of processed diamonds and develop a domestic gem market.

“The opening of the Shanghai Diamond Exchange will push forward the growth of China's diamond exports and create many job opportunities,” said Eli Izhakoff, chairman of the World Diamond Council. “It also will promote Shanghai as a major trade center in Asia.”

Located in Pudong District’s Jin Mao Tower, the US$5-million exchange was invested jointly by seven mainland companies and Hong Kong's Brilliheng Holdings Co.

The mainland investors, including the China National Arts & Crafts Imp & Exp Corp. and Shanghai Lujiazui Development (Group) Co., own 75 percent of the exchange, while Brilliheng holds 25 percent.

Four years ago, Israel-based United Development Inc. contacted Shanghai Lujiazui to set up the exchange.

UDI, however, was not chosen as a foreign partner in the project when the State Council authorized the establishment of the market in February, industry insiders said. In addition, the city will set up two diamond processing centers soon - one in Pudong and the other in the Longhua area in southern Shanghai.

The centers will process rough diamonds mainly for foreign companies.

Last year, diamond sales in China reached 2.7 billion yuan (US$325 million).

(eastday.com 10/30/2000)