Some of the worlds largest diamond manufacturers have embarked on a second wave of development in China to benefit from Asias growing consumer markets, writes Business Day.

The focus is no longer primarily on exports, but on the regions consumer markets.

Leo Schachter Diamonds, one of the largest diversified, privately held diamond companies, with $650 million in annual sales, earlier this month, opened a manufacturing operation in China. It is the first US company to establish a diamond cutting factory in China.

The company is one of De Beers largest sightholders.

The site has dormitories, dining facilities, a computer room, sports facilities, a shop and a library. There is room for 800 recruits to learn to saw, cut and polish diamonds of all sizes and colours. Training includes the use of laser driven computer systems for precision cutting.

Since starting production in May this year, the plant accounts for 50% of Leo Schachter Diamonds’ total diamond production by volume. The rest is produced in Botswana and South Africa.

China offers manufacturers cheap labour, a skilled and productive workforce and a government that favours business.

"We are planting seeds for the future when China becomes a major consumer market," said Elliot Tannenbaum, CEO of Leo Schachter Diamonds.

About 20% of the companys diamond sales to jewellery chains and stores are generated in the Far East. Europe accounts for 15% and the US accounts for 65%.

About 10 million couples marry in China each year. Last year, jewellery sales value reached $14,5 billion. By 2010, sales could amount to $22 billion, which would make China the worlds top jewellery market, according to a recent report by Flanders Investment in Hong Kong.

"We strive to be the lowest-cost producer in the industry, which is why we will always seek opportunities in emerging industrialised nations," Schachter said.

Though China’s manufacturing capacity is unlikely to wipe out that of India, which cuts and polishes most of the world’s diamonds, it has contributed to the rapid decline of the industry in Antwerp, New York and Israel.

At least 10 Indian diamond traders have set up manufacturing operations in China, lured by the countrys jewellery-design skills and operational efficiencies.

Tannenbaum: "China has a relatively high production capacity, which allows us to pass on additional cost benefits to clients. But even more important is the highly skilled workforce, which allows us to do the full production process here."

Chinas diamond manufacturing dates back to the 1970s, when there were a few diamond-cutting plants with about 500 workers. The number has grown since the 1990s, propelling the country to number two worldwide in diamond cutting volume and the number of workers, said the Flanders Investment report.

China has been a signatory to the Kimberley Process since 2003, and it has also invested significant effort in regulating its diamond sector by creating the Shanghai Diamond Exchange. %% It has cut its diamond import tariff to zero. But rampant smuggling continues because of a 17% import value-added tax. %% Tannenbaum is preparing for further expansion of the Leo brand in Hong Kong, and later in India. "We’re positioning Leo worldwide for the upper-middle class market. Long term, we envision a strategic alliance with a properly branded company." %% Newly appointed DTC managing director Varda Shine said: Looking at global diamond growth over the past few years, and the huge potential of the Chinese market, this venture has great potential."