Gems council may leave China

The Gems & Jewellery Export Promotion Council (GJEPC), the apex body set up by the Union ministry of commerce to monitor the jewellery business overseas, says it might call for pulling out of the diamond cutting and polishing business in China.

This follows last week's detention of 21 Indian diamond merchants in Shenzen province. "If the Chinese government has taken this step as a retaliatory action for the arrest of three Chinese engineers in India (in connection with the industrial accident last September at Balco's Korba unit, killing 41), we will have to consider pulling out from China," said GJEPC Chairman Vasant Mehta, on the sidelines of a seminar here.

The Indians were detained by the Chinese police on allegations of smuggling diamonds from Hong Kong to China and vice versa. The Chinese police said many of these Indians were part of a big smuggling ring.

External affairs ministry officials, however, rejected the retaliation explanation.

Since diamond imports in China attract a duty of 4 per cent for members of the Shanghai Diamond Exchange and 18 per cent for non-members, it makes sense for diamond merchants to ship precious stones to Hong Kong, where shipments attract no duty. Shenzen, an hour's drive from Hong Kong, is an attractive place for diamond processing, with modern infrastructure. The local government wanted to develop it before Shanghai was made a diamond processing hub.

According to Indian trade experts, half of India's total diamond exports to China was being carried out illegally through Hong Kong to save tax and remain competitive.

Mehta said the Council would have no objection of the Chinese government leaves the matter to the local judiciary. India, being a democratic country, has high regard for the judiciary, he added.

The Chinese authorities have reportedly consulted the Indian ambassador in Shanghai on the issue.

The business environment is otherwise good in China for the sector. Local demand is very high, as against minimal production. It makes sense for Indian companies to set up diamond cutting and polishing factories there, more so as locally processed jewellery attracts no duty in China.