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Selling diamonds and jewelry in China

21 may 2012

China's power as a significant player in the consumer market for diamonds is unquestionable, says Michal Gordon-Keret, Managing Director of the Israel Diamond Institute Group in Hong Kong in an article posted on www.israelidiamond.co.il. Many diamond dealers conduct their trade in Hong Kong out of convenience and due to its proximity to China, but lately there has been a tendency to work in China itself, directly and formally. Despite the potential, the diamond and jewelry trade in China is complex and entails much bureaucracy.

Abiding by and conforming to the law

First of all, it must be emphasized that diamonds and jewelry must be imported to China legally. If someone gets caught with merchandise that was not brought into the country legally, Chinese officials "shoot first" - metaphorically - and ask questions later. Punishments are very stiff and are likely to result in jail time. As well, the state carries out spot checks in jewelry stores from time to time and checks to see if they have documentation for all the diamonds in the store.

Selling to non-members of the Shanghai Diamond Exchange 

Only companies registered at the Shanghai Diamond Exchange (SDE) are permitted to bring diamonds and jewelry into China, and to sell them. It's a process that requires paperwork and takes one or two days. However, for those who are not members of the SDE but want to sell diamonds in China regardless, there are a few options available. There are companies registered with the SDE that offer administrative services for selling diamonds in China. The service will cost between 1-2% of the sale price, depending on the type of merchandise.

Delivery companies Brink's and Malca Amit offer administrative services before and after a sale. They will take care of the entire bureaucratic process for the transport of the diamond or jewelry and dealings with the customs officials. The merchandise enters China legally, and the diamond dealer can travel throughout China in order to sell the diamonds for a period of four months.

All the paperwork is in the name of the delivery company. After the sale is made, the delivery company takes care of the rest of the paperwork, including paying the required taxes, and transferring funds between the local buyer and the seller outside the country. Rappaport offers a similar service, after the sale.

Delivery

One must be especially careful when delivering diamonds. Nothing can be added to a package of diamonds, not even tiny tweezers or anything connected to diamonds, with one exception: if the back of the delivery documents lists the serial number of the document that is sent to the SDE, you must include the document itself inside the package. Chinese officials are very strict and any small deviation will mean a delay in delivery and fines.

Gemological documentation

When the merchandise goes through customs, it is analyzed by a local gemologist. Every single diamond is checked separately with its documentation. There are negotiations with the local gemologists over the classification of the diamonds. This process takes several hours. Releasing the merchandise from customs takes about two or three business days. If the diamonds are arriving for the purposes of an exhibition, a longer waiting period should be taken into account, approximately four to five business days.

Although it is possible to deal in diamonds without documents, in these cases, the SDE gemologists tend to judge harshly and assign a lower valuation to the diamonds. GIA documents are recognized everywhere, as are documents from large international labs such as HRD, IGI and EGL. Legally, it is possible to sell diamonds without a Chinese document, but many consumers trust them and see it as a safety net.

Polished tax

For all polished stones brought into China one must pay a 0.3% transaction fee, minimum $45, and a stamp duty of 0.06% when it is released from the SDE customs office. These fees must be paid in any case, regardless of whether the diamonds are sold (no refunds). As well, one must pay a 4% deposit in advance (equal to VAT) which is returned in the event that no sale takes place. Note the difference between a sale to a private individual and a sale to a company (with a registration number). When selling to companies, taxes reach almost 6%. When selling to a private individual, taxes reach almost 18% (6% plus 11% tax for selling to a private individual). It's possible to bring diamonds and jewelry into the country without paying customs fees (though you must leave a deposit of 4%), but only if their trading will only occur within the SDE building.

Rough tax

Regarding rough diamonds, one must distinguish between rough diamonds for polishing purposes and rough diamonds for trading purposes. Rough diamonds for the polishing purposes enter the factories directly by way of permitted ports to each specific factory - Shenzhen, Shanghai, Beijing, etc. After polishing, the factory must provide the authorities with documentation demonstrating that everything that entered the factory exited it (the polished diamond and the residue). Rough diamonds for trading purposes must enter via the SDE, although no taxes are required. They require only a stamp duty and a transaction fee.

Sales to stores

Diamonds can be sold outside of the diamond exchange, in stores. It is recommended that one make appointments in advance, but it is not necessary. It is advisable to arrive dressed in appropriate clothing, with many business cards. The custom throughout the East is to exchange business cards right away at the beginning of a meeting, to hand the card over using both hands, with the text facing the right direction so that the person receiving the card can read it. The cards will sit in front of you for the duration of the meeting. You cannot write on it, and you cannot put it into your wallet. The card represents the person it describes and any slight to the card is considered an insult to the person themselves.

There are several areas in Shanghai with a concentration of jewelry stores. In addition to the Pudong area, where the SDE is located, the stores are centered around the city center called Chenghuang Miao. Another area is the Yu-Yuan Gardens and Nan-Jing Street, a long street with stores along its length. In Beijing, the stores are centered around Xidan, and in Guomao, in the city center, where the World Trade Center is located.

One must keep in mind that most locals speak no English and there are almost no street signs in English. Therefore it is advisable to walk around with notes and signs in Chinese, or with a translator. In large Chinese cities, many students work as translators, and a quick internet search will provide you with a long list of them. Their rates vary at around 800 Yuan per day.