China's sole diamond exchange aims to become the world's fifth largest exchange in 10 years, but senior officials in the global diamond industry suggest the Chinese government remove the tax levied on the precious stone to achieve the goal.

"Shanghai Diamond Exchange will, step by step, realize an annual trading value up to US$5 billion in 2010," said Kang Huijun, chairman of the board of Shanghai Diamond Exchange Co Ltd.

"We plan to hit annual trading value of up to US$600 million in two years and the figure is expected to top US$3 billion in 2007," said Kang.

The Shanghai Diamond Exchange was formed in October 2000 but it started transaction officially in June last year.

As the trading volume rises, diamond-related industries, such as diamond insurance, advertising and safe-deposit service, will also prosper in Shanghai, Kang added.

Shanghai, the country's largest diamond consumption city, now accounts for one-third of the country's total sales of the precious stone with an annual sales value of 5 billion yuan (US$602.41 million).

For the exchange to achieve its ambition, Shmuel Schnitzer, president of World Federation of Diamond Bourses, suggests the government reduce the tax levied on diamond or even remove it.

"Very few countries where diamond trading is thriving levy a value added tax or import tax on diamonds traded in exchanges," said Schnitzer.

"The government has already taken action to deal with the issue. And we will take further steps to reduce the tax rate," Fang Xiong, chairman of Shanghai Diamond Exchange Administration, said.

Import tariffs have been abolished on rough and polished stones since 2002. But a 17 percent value added tax is levied instead.

Sales of diamond in China totaled only 2 billion yuan in 1995, but were 14.5 billion yuan last year.

(Shanghai Daily November 19, 2003)