Hong Kong Gem Fair Shows Glamour, Trends in Global Jewelry Industry

Hong Kong is one of the world's leading markets for jewelry. Claudia Blume went to the city's international jewelry fair to find out about the latest trends in the industry - such as the effect of rising gold prices, the growing popularity of diamonds in the region and China's rise as the world's pearl center.

In Hall Seven of Hong Kong's Convention and Exhibition Center, table after table is stacked with strings of pearls, looking more like a rummage sale than a display of luxury and elegance. Most of the pearls are from one country: China.

Didier Brodbeck, a French pearl expert, says Chinese fresh water pearls now account for about 95 percent of the world's total pearl production.

"The boom is very recent, maybe 10 years ago, but the pearls are getting better and better, bigger and bigger, and more attractive, you know," said Brodbeck. "In the early days, they were not very good quality pearls. They are still very, very cheap, because the production is so big."

While mass cultivation has caused the price of pearls to drop dramatically in the past few years, South Sea pearls from countries such as Polynesia and Australia remain expensive. This is because they are more rare, because they develop naturally in oysters in the sea.

Brodbeck says Hong Kong has become the center of the pearl business in the past decade, after taking over from the previous pearl capital, Kobe, Japan. But Brodbeck says Hong Kong may lose its position to a newly created city in mainland China. Pearl City, in Zhuji, on the Yangtze River is set to open later this year. It aims at becoming the world's leading center for the cultivation and trade of pearls.

"They want to take the business away from Kobe and Hong Kong and have a world pearl market open every day of the week, all year round, so people can buy any kind of pearls, and they want the Chinese, the Japanese, Polynesians - everybody to come who has interest in dealing with pearls," he said. "And, when the project will be done they expect to have like 4500 firms established there that will be open seven days a week."

Hong Kong's International Jewelry Show is the world's third largest fair of its kind. More than 2300 exhibitors participated in the latest fair, setting a record.

Hong Kong is the world's fourth-largest exporter of precious jewelry. The city is also the world's biggest exporter of imitation jewelry and a leading producer of gold items.

Many producers have been affected by rising gold prices. The price surged more than 30 percent in the past year, reaching a historic high of almost  $1,000 an ounce this month.

This Hong Kong producer of gold jewelry, who mainly sells to the United States, says his profit has shrunk because now customers buy cheaper items.

"Looking at Valentine's Day sales' turnover, for example, was the units haven't really gone down in America - the sales value has definitely gone down," he said. "Also, the buyers ask for a lot more silver products which we don't specialize in, and silver and gold."

Some parts of the world have remained relatively unaffected by higher gold prices. Simon Yau, with the World Gold Council, says in China, demand remains high.

"For example the last year, in 2007, the gold demand in China is already (up) over something 20 percent," Yau noted. "Also in the first two months of this year - that means January and February - demand is still growing up comparing to last year. It is about 20-something percent growth compared to last year. We believe that retail and the consumer demand is still there. They have money."

China became the world's second biggest gold buyer, last year, overtaking the United States. The world's biggest buyer remains India, where gifts of gold jewelry play an important part in weddings and other celebrations.

In both India and China, there is a growing interest in diamonds, as a symbol of newly acquired wealth. This employee of an Israeli diamond firm says that as sales in the United States have fallen, because of the economic downturn there. Her company increasingly focuses on India and China.

"At one time, it was just China was buying for production and exporting. Now, they are buying for their own consumption," she said. "And, the same with India. India used to buy and export - just for manufacturing and then export it and now the Indian population, 10 percent of the Indian population is very, very wealthy and that 10 percent people have now become very interested in diamonds and the money they have is phenomenal."

It is India's fashionable youth who are driving diamond sales. They see diamonds as more trendy than traditional gold. With a large population of educated young adults entering the job market in India, traders at the Hong Kong fair expect to see a strong market there for years.