“Diamonds are forever—once a diamond, always a diamond.” Although endowed with the symbolic meaning of true love, in China diamonds are more akin to durable consumer goods that serve as a store of value, rather than collectibles that can generate investment returns as they do in the West. Recently, on various jewelry forums, it has even become widely circulated that the price of a 1-carat diamond has not risen over the past decade—but has instead fallen.

As China’s luxury goods market slows down, diamonds—once experiencing a sharp surge in sales—now face challenges.

According to data from the Shanghai Diamond Exchange, from January to April this year, the cumulative volume of diamond transactions through the Shanghai Diamond Exchange totaled 42.8771 million carats, a significant year-on-year decrease of 45.4%. In April alone, imports of finished diamonds amounted to 110,900 carats, down 19.1% year-on-year, with a value of US$143 million, a year-on-year decrease of 26.3%. In fact, since October last year, the volume of diamond import transactions has been on a month-on-month downward trend.

Globally, diamond prices peaked in the summer of 2011 and have been gradually declining ever since. The RapNet Diamond Index (RAPI) shows that in 2014, the prices of 1-carat diamonds with certificates fell by 8.7%, while those of 0.30-carat diamonds declined by 6.5%, and 3-carat diamonds dropped by 6.6%. As of last August, the average price of polished 1-carat diamonds had fallen by 27% from their peak in 2011. The price of 3-carat diamonds had declined by 23% since reaching their peak in July 2011.

In department stores and online diamond platforms, retail prices for diamonds in mainland China have fallen even more noticeably. Currently, a 1-carat diamond ring in Guangzhou department stores is listed at around 90,000 to 130,000 yuan—unchanged from prices seen a decade ago. During major mall sales, you can often find a 1-carat diamond ring for as little as 60,000 to 70,000 yuan. In 2011, when media reported that diamond prices had risen by 30% within half a year, they cited the example of the well-known online diamond retailer Diamond Bird: A 1-carat diamond sold for 95,457 yuan in January 2011, rose to 108,931 yuan in March 2011, and further climbed to 123,110 yuan by June 2011. However, as of late July this year, the author checked Diamond Bird’s website and found that the price range for a 1-carat diamond ring was between 57,480 and 99,020 yuan.

Even at auction venues where the wealthy splurge lavishly, high-quality colorless diamonds don't come cheap. For example, on June 4, 2014, Christie’s London auctioned a 1.22-carat D-color IF single-diamond ring, which sold for £8,750—less than RMB 80,000. Not only was this price significantly lower than that of colored diamonds, but it was even lower than the prices of high-quality semi-precious stones such as tourmaline.

Since the beginning of this year, many jewelers have started using diamond buyback promotions to boost sluggish diamond sales.

For example, the minimum investment threshold for diamond investments offered by Zhongjin Gold starts at 1 carat, with a price of around 130,000 yuan. However, upon careful review of the buyback terms, we can see that if an investor purchases a loose diamond quoted at 100,000 yuan, they’ll need to pay a 10% handling fee at the time of purchase—meaning the investor’s total cost will be 110,000 yuan. Assuming last year’s average unit price for finished diamonds traded on the Diamond Exchange was $1,306.84 per carat, representing a 10.02% year-on-year increase, even if this loose diamond’s price rises by 10% annually, after two years, when the jeweler repurchases it at the market price of 121,000 yuan while charging a 5% handling fee, the investor will ultimately receive 114,950 yuan. Under these conditions—holding the diamond for two years, with an initial investment cost of 110,000 yuan and a compound annual growth rate in diamond prices of 21%—the investor’s average annualized return comes out to only about 2.2%, which is lower than the 2.6% interest rate offered by bank fixed deposits two years ago. Moreover, all merchants offering diamond buyback services target only loose diamonds by the carat and do not include diamond rings that are already set with stones. In other words, if you invest in a diamond ring, you’ll likely end up having to take it to a pawnshop and get only 30% of its original value in return.

As Guangdong Province, which accounts for 70% of the nation’s diamond import trade volume—during the first three quarters of 2014, the value of rough diamond imports and exports from Guangdong accounted for 71% of the national total—what has been the price trend of other jewelry products over the past decade? According to data provided by Guangdong Huayou Auction House and the Guangdong Jewelry & Accessories Association, from January 2005 to January 2015, the price increase in the jadeite market ranged from 8 to 20 times (with higher-grade jadeite experiencing greater price increases than lower-grade jadeite); the price increase in the Hetian jade market was between 5 and 10 times (with mid-range products showing the largest increase); and the price increase for Huanglong jade ranged from 10 to 30 times—not the hundredfold rise often rumored.
 

Why do diamond collections, though visually stunning, have lower investment value in China compared to other types of jewelry?

The most critical factor Perhaps because 80% of finished diamonds in China are used for wedding rings, it’s likely that very few people would be willing to buy a secondhand diamond ring from a collector and present it to their loved one as a symbol of true love.

In addition, there are four main reasons why colorless diamonds haven't risen in price over the past 10 years:

First of all As a gemstone with globally standardized criteria, the quality of diamonds does not vary depending on the brand. As a result, diamonds have become the category undergoing the most thorough channel transformation in China’s jewelry industry.

Unlike jade, which still faces a hefty tariff of up to 33.9%, starting from July 1, 2006, finished diamonds processed domestically and sold through the Shanghai Diamond Exchange are exempt from value-added tax at the domestic sales stage. Moreover, the consumption tax on these diamonds is only 5%, half the 10% consumption tax imposed on jade. Leveraging this favorable policy, online diamond retailers in mainland China have begun to grow rapidly; at their peak, there were roughly a thousand such platforms operating across the country. Today, more than 100 sizable online diamond retailers remain in active operation, and the overall market size has approached 7 billion RMB. In 2014, total sales of diamond-set jewelry in China’s domestic retail market amounted to approximately 35 billion RMB. In other words, online diamond retailers now account for nearly 20% of the entire diamond sales market. From traditional department-store counters and brand-specific boutiques to B2C diamond retailers, the retail prices of diamond rings have shifted—from being three to ten times the cost of the bare diamond—to a much more modest profit margin ranging from 10% to 30%.

Secondly In recent years, jewelry with astonishing price increases on the Chinese mainland has been characterized by concentrated production in specific regions, where high-quality specimens are extremely rare. For example, Hetian seed jade from Xinjiang, nephrite from Russia, jadeite from Myanmar, and pigeon's-blood rubies—all exhibit this pattern. In contrast, diamond sources are highly dispersed; in recent years, new diamond mines have been discovered in South Africa, Australia, and Russia.

Moreover, compared to artificially synthesized products—such as Hetian seed jade, Burmese jadeite, and pigeon-blood rubies—that have yet to successfully achieve large-scale replication, synthetic diamonds are widely available. In 2013 and 2015, the Shenzhen Jewelry Association discovered in the Shuibei area, a major wholesale jewelry market, that large quantities of small synthetic diamonds had entered the market. Unlike genuine jadeite and Hetian jade, which can be distinguished by the naked eye even by experienced dealers, identifying the latest synthetic diamonds from natural diamonds requires sophisticated, high-end instruments. Using traditional identification methods—relying on experience, tactile sensation, and visual inspection—it is extremely difficult for even seasoned experts to distinguish CVD synthetic diamonds. Even specialized diamond thermal conductivity testers and high-magnification microscopes may fail to detect them; only large laboratories equipped with highly advanced, specialized equipment can reliably identify such diamonds. Moreover, a complete set of equipment capable of detecting CVD synthetic diamonds costs at least several hundred thousand yuan at the very least. Without extensive training and years of accumulated testing experience, even operators using cutting-edge instruments would find it challenging to make accurate identifications.

Interestingly, Martin Rapaport, CEO of the Rapaport Group—whose publication, the Rapaport Diamond Price List (also known as the International Diamond Price List), serves as the industry’s benchmark for pricing—said last year: “God bless those jewelers—Cartier, Tiffany, Van Cleef, and others—who painstakingly design exquisite diamond jewelry and display it in their windows only to find, within a few days, that exact same style has already appeared on the market as a synthetic diamond imitation. This fear has left the diamond industry on edge.”

Again It’s simply too difficult for ordinary investors to obtain a rigorous gemological certificate. Even when dealing with natural diamonds, different testing institutions can produce diamond certificates with varying degrees of precision in color grading—often, a single grade difference can result in a price discrepancy of over 10%. For instance, the GIA certificate, which is the world’s most authoritative and imposes the strictest standards on color grading, charges at least $60 per carat for a one-carat diamond, with certification fees calculated by the carat weight. Moreover, recently, GIA testing has been available only in Hong Kong; if you choose to have your diamond tested at the GIA in Los Angeles, it will take at least seven weeks. In contrast, gemstone testing—for stones like Hetian jade and jadeite—can be conducted right here in China. Typically, you can receive the appraisal results within just one hour, and the cost ranges from around 10 to 100 yuan.

Finally Domestic speculative capital is also more inclined to hype jewelry that they can stockpile and control the supply of raw materials for. However, the major player behind diamond price manipulation is the renowned De Beers, while private collectors are predominantly wealthy individuals from Japan and the West—domestic speculative capital isn't eager to play along and prop up their prices.

For instance, in the 1980s and 1990s, Japanese consumers went on a buying spree for high-end jewelry such as diamond rings and earrings. Today, due to an aging population and prolonged economic downturn, jewelry owners in Japan are exchanging their unwanted jewelry for cash—and this dormant wealth is increasingly flowing to Asian countries like China and India. According to data from Japan’s Ministry of Finance, in the first four months of this year, Japan’s exports of used diamonds rose by 77% year-on-year to 38,000 carats—the highest level since 2007. In terms of value, Hong Kong, China, ranked first among export destinations. An Indian-origin diamond dealer noted, “For diamonds of the same quality, used diamonds from Japan are 15% cheaper than new ones from India.”

Imbued with the cultural essence of China, jadeite, Hetian jade, Huanglong jade, and other gemstones—highly favored by older middle-class customers—have thus become targets of speculation by local speculative capital. For instance, speculators from the Jiangsu and Zhejiang regions gravitate toward Hetian jade mined in Xinjiang, while those from Fujian and Chaoshan prefer jadeite sourced from Myanmar. Moreover, in mainland China, these industries have given rise to tightly-knit business groups bound by close familial and geographical ties—such as clan networks, villagers from the same hamlet, or fellow townsfolk.

The sales channels have been most thoroughly transformed by the internet. The proliferation of lab-grown diamonds, the inconvenience of diamond authentication, the dispersed origins of diamonds, and the fact that early collectors were largely based overseas—all these factors, combined with the inability of speculative capital to control the market trends of this category, have created a market dynamic in which investing in ordinary carat diamonds is virtually guaranteed to result in losses rather than profits.