The Diamond Market’s China Challenge

The slowdown in China continues to impact the diamond trade.

The slump in Chinese demand has presented a major shift in the market in the past few years, after China was the growth engine for the industry in the last decade.

Its growth story began in 2010 and 2011. As the west was recovering from the financial crisis, there was a massive expansion of jewelry stores across China, driven by economic growth – particularly in tier-3 and tier-4 cities.

As more stores opened, more orders were placed for diamonds to fill all those new display cabinets, inspiring a boom in the polished market. That quickly turned to a bubble which burst around mid-2011 when the expansion slowed and President Xi clamped down on luxury gifting. In subsequent years, there were ups and downs, but overall demand was relatively stable.

The slump in demand in the last five-to-seven years has had a different dynamic. It wasn’t only due to the pandemic.

Behind the slump

Political unrest in Hong Kong affected the retail and luxury segments there, trade tensions with the US impacted China’s exports – the backbone of the economy – and the real estate slump has more recently weighed on economic growth.

Of course, the prolonged lockdowns during Covid and the delayed opening of the economy affected sentiment. Consumers came out of lockdown even more focused on saving rather than spending.

There’s also been a shift in attitude among the younger generation who are delaying marriage or choosing to stay single, a trend many observed intensified during the pandemic and as the economy weakened. Commentators point to a rise in the cost of living and sagging population growth among the considerations affecting the marriage decision.

Marriage registrations declined for nine consecutive years, reaching a record low of 6.83 million in 2022, according to data from the National Bureau of Statistics of China. While there was an increase in 2023, the measure was on track to slide to historic lows in 2024.

For the first nine months of the year, 4.747 million couples were registered, which was 943,000 below those recorded in the same period of the previous year, Reuters reported citing data from the Ministry of Civil Affairs.

Weak fourth quarter

The diamond and jewelry sector therefore faces a perfect storm. The decline in sales continued toward the end of last year, as reported by the major jewelers.

Retail sales at Chow Tai Fook dropped 14% year on year in the fiscal third quarter ending December 31. Its same-store sales of gem-set, platinum and K-gold jewelry declined 20% in mainland China but grew 34% in Hong Kong-Macau.

Luk Fook reported revenue across its self-operated stores and e-commerce platforms fell 9% year on year during the quarter. The group’s diamond sales slumped 46%. 

The slowdown has also hit the high-end jewelry segment. Richemont reported sales in China fell 18% during the quarter, while LVMH acknowledged “a more challenging market environment” there.  

Bottom in sight

What does that all mean for the global diamond trade?

Demand fell about 50% and that’s caused a recycling of polished throughout the system, Paul Rowley, De Beers executive vice president of diamond trading, told Jewelry Outlook on the sidelines of the Doha International Diamond Conference this week.

“China has been our biggest obstacle in the last couple of years, after an incredibly strong couple of decades,” Rowley said. “Coming out of Covid, China has stepped back… and we felt the impact. We saw demand drop by about 50%, in line with other luxury products, and that’s caused a recycling of polished throughout the system, which has created its own dynamic within the midstream.”

Rowley assesses that most of that de-stocking has now taken place. he expects Chinese demand should start to pick up “a little” toward the end of the year.

Indeed, the market may well bottom out at some point this year. But growth will be off a low base, and one should not expect a sudden spike in demand. It will take time for China to return to the levels experienced in the last decade.

For now, at the start of the ‘Year of the Snake,’ the diamond trade continues to feel the absence of Chinese buyers from the market, while China continues to rank among the industry’s biggest challenges.

Wishing you all a Happy and successful Lunar New Year!