Diamond Glittering in Shanghai

With the beat on the gong struck by Mr. Xu Kuangdi, mayor of Shanghai, the Shanghai Diamond Exchange is opened on Oct. 27th, 2000. After more than five years of preparation, this exchange finally settles down at the 6th floor of Jinmao Mansion in the Pudong New Area, becoming the 24th international diamond bourse.

The 2'700-m2 exchange centre was officially approved the State Council of China in March this year. Following the international model, the Shanghai Diamond Exchange Centre consists of one united administration office, one trading exchange, auxiliary service organisations and a group of diamond processing enterprises. Currently, two processing zones, Lujiazui and Longhua bases, are under pressing construction. Tens of processing enterprises from Israel, Belgium, South Africa and Russia have come to settle in the zones.

Like the nature of diamond, the realisation of Shanghai Diamond Exchange entails unusual characteristics. Since already years ago, the mayor of Shanghai has been to Beijing five times to request approval for the intention of Shanghai to set up this diamond exchange. At that time, this conception sounds like the Arabian Nights to many central government officials, as it would require many supportive conditions that had never existed in China before. And according to the Chinese mentality, introducing new ideas has to digest much courage and time to challenge the objection to break old rules. Nevertheless, Shanghai eventually convinced and won the support from the central leadership with the following special policies for the new exchange:

1. The Shanghai Diamond Exchange is the only one with foreign investment among the various exchanges of stocks, future, metal and oil etc. in China. The major Chinese partners are China Handicraft Imp. & Exp. General Co. and Shanghai Lujiazui Group Company, each has 25% share. Another five Chinese investors each have 5% stocks. Originally Shanghai approached to Israeli businesses as the foreign partner of the JV. But, the co-operation miscarried somehow. Instead, Hongkong Brilliant Trading Co., Ltd and Hongkong Lee Heng Diamond Co., Ltd jointly sets up a new company to invest with another 25% share in the Shanghai Diamond Exchange. 

2. Under the membership and closed operation system, all members of this exchange can have their own foreign currency accounts and hence settle all transactions in USD. In China, a country where policies of supervision over foreign currencies are adopted, all enterprises have to submit foreign currencies they earn and can apply to buy foreign currencies when they need to. Thus, foreign currencies can not be used at any place. But now, the Shanghai Diamond Exchange becomes an exception.

3. All products traded in this exchange are redeemed bonded. This means imported diamonds need only to be filed at the Customs whereas are exempt from tariff, VAT and consumer tax. The diamonds transacted within the exchange are also free of VAT and consumer tax.

The determination of Shanghai for this project does not result from its interest in prospective taxation or augmentation of job opportunities. Actually transaction in this exchange is exempt from taxation. And the labour cost in Shanghai is relatively high, therefore setting up a production line here does not possess clear superiority. But Shanghai has its own ambition from the perspective of long-term strategy: to become one of the international financial and trade centres. With coexistence of exchange centres of silver, futures, T.B, and pending clearinghouse, Shanghai considers the Diamond Exchange a link in the financial chain, which can further facilitate the progress towards the objective. Compared to Hongkong, the only international diamond trade centre in Asia at present, Shanghai enjoys a larger processing hinterland throughout the region of the middle and lower reaches of the Yangtze River and a even closer geographical link with the Japanese market. Therefore, given the same taxation and settlement incentives as those in Hongkong, Shanghai gains more confidence to compete with Hongkong.

It is said that the Chinese side is willing to transfer some shares to potential foreign investors. For any inquiry or more information, interested party may contact the United Administration Office: 
7F, Jinmao Mansion, 88 Century Ave., Shanghai
Tel.:+86-21- 5840 1679; 5047 2288 ext. 6075
Fax: +86-21- 5049 8307
Responsible: Mr. XIONG Guoxiang, vice director

8.1.2001

Consulate General of Switzerland
for business related matters, please reply: sha.vertretung@eda.admin.ch