How a Chinese county known for growing chillies is now disrupting the world’s diamond supply

ZHECHENG COUNTY, Henan – There is no airport and the nearest high-speed train station is an hour’s car ride away, through the vast fields of red peppers that are used to make the popular chilli crisp Lao Gan Ma.

In the heart of the sleepy county, there is just one unassuming four-storey mall, where the most well-known brands are Haidilao and Huawei. Food is cheap here – a hearty bowl of noodles costs around 10 yuan (S$1.80).

So it is with a sense of curiosity that I explore Zhecheng, in the central Chinese province of Henan, in search of something typically associated with wealth and luxury: diamonds.

A Chinese joke goes: Diamonds are forever, but one can make you bankrupt. At Henan Heshi Diamond, however, you can get a one-carat engagement ring for as little as 5,000 yuan.

The catch? The diamond is grown in a lab, which takes just 15 days to turn lowly carbon into a sparkling gem that appears no different from one mined from the earth.

A ring made with a comparable natural diamond by a well-known jewellery brand would likely cost 100,000 yuan, Henan Heshi Diamond’s manager Zhu Yongchao told me as he led me around the company’s factory floor, located at the back of the boutique.

“In the past, diamonds were very expensive and considered a luxury item. But now, we can make value-for-money diamonds, which is a good thing that ought to be made accessible to more people,” he said.

China’s burgeoning lab-grown diamond industry was responsible for more than 70 per cent of the world’s output in 2023, totalling 22 million carats, according to a recent China Daily report. That prodigious output is now disrupting the global diamond supply and changing attitudes towards the coveted gem.

The global synthetic diamond market was valued at US$24 billion (S$32 billion) in 2022 and is projected to more than double to US$59.2 billion by 2032, according to Allied Market Research.

China and India are the two largest producers of synthetic diamonds, while the US is the biggest retail market for them, followed by India and China.

The scale of China’s production has driven down global prices, with natural diamond prices in 2024 falling by 18 per cent from their 2022 peak, said Ms MingYii Lai, a strategist consultant at Shanghai-based market research firm Daxue Consulting.

The world’s largest natural diamond producer and distributor, De Beers, saw its revenue fall 23 per cent to US$3.3 billion in 2024. In an almost unheard-of move, the company even slashed prices of its mined stones by 10 per cent to 15 per cent at its end-of-year sale.

A row of experienced factory workers deftly cut and polish plain-looking rough diamonds into sparkling gems for Chinese jeweller Henan Heshi Diamond.ST PHOTO: MICHELLE NG

China’s own natural diamond market has also taken a hit, shrinking 22 per cent from 2022 to 2023 according to an industry report.

I Do, a brand repped by Hong Kong singer-actor Jordan Chan and his actress wife, Cherrie Ying, and targeted at young working adults, closed all its stores and filed for bankruptcy in January 2023.

Prices of synthetic diamonds have also fallen, and they are now up to 80 per cent cheaper than natural diamonds compared with 20 per cent cheaper in 2018, owing to savings from improved manufacturing technology. But Chinese producers expressed confidence the market will still grow as consumers seek more bang for their buck.

“A diamond is a diamond no matter how it is formed – grown in a lab or mined out of the ground – because both are made of carbon. It’s like comparing ice made in a fridge at your home with ice from a river,” said Henan Heshi Diamond’s Mr Zhu.

Diamond capital

Nowhere in China does it shine brighter than in Zhecheng, which claims to contribute more than half of China’s annual output of synthetic diamonds, earning it the nickname “diamond capital”.

But it first began manufacturing the gemstone, the hardest-known material in the world, for industrial use, rather than jewellery.

In the 1950s, China relied mainly on imports of diamonds for its industries, and it was in 1963 that the first lab-grown diamond was produced in Beijing.

In the 1980s, an engineer brought the technology back to his home town of Zhecheng and set up a diamond factory. By the late 1980s, the industry had developed rapidly, and diamond processing enterprises had sprung up throughout the county.

At Zhecheng, Henan, a diamond-shaped structure sit in county’s main square.ST PHOTO: MICHELLE NG

Now home to around one million people, Zhecheng had a niche in manufacturing diamonds and other super-hard materials for industrial use, before it expanded into gem-grade consumer diamonds in the last two years.

Today, the county houses more than 120 diamond-related enterprises in a 12 sq km industrial cluster, including two listed companies, LiLiang Diamond and Huifeng Diamond.

Walking around, I see signs everywhere lauding Zhecheng’s diamond prowess. A diamond-shaped structure stands proudly in the county’s main square, next to a trade centre that was said to be undergoing renovations to “become more luxurious” to attract customers.

Today, the county houses more than 120 diamond-related enterprises in a 12 sq km industrial cluster, including two listed companies, LiLiang Diamond and Huifeng Diamond.ST PHOTO: MICHELLE NG

There are two methods of producing diamonds in the lab. A chemical vapour deposition process favoured by Indian producers is more costly and takes a longer time, but produces higher-purity stones.

Most Chinese producers use the high-temperature high-pressure process (HTHP), which is cheaper and faster but yields lower-clarity and smaller diamonds. This has drawn criticism from De Beers Group’s chief executive Al Cook, who said in an interview with Bloomberg on Feb 4: “A natural diamond is created over a billion years under the surface of the earth, whereas a lab-grown is created in a microwave in China in three weeks.”

Shifting attitudes

Young Chinese consumers, however, are warming to more cost-effective lab-grown diamonds amid an economic slowdown.

While gold still holds value as wedding dowries, the desire for natural diamond rings is waning as more couples opt for practicality – spend less on rings, spend more on other things.

As I visited various jewellers in Zhecheng over two days in February, it became clear that their main message for consumers was: Diamonds don’t have to last forever, you can swop them out for a new stone any time.

This is contrary to De Beers’ “A diamond is forever” tagline popularised in the 1940s, which likened eternal love to a rare and expensive diamond.

Chinese lab-grown diamond brand Hua Jew shop in Zhecheng, Henan.ST PHOTO: MICHELLE NG

Here, sales assistants like to bandy around the term “carat freedom”, which essentially means that the regular person is no longer constrained by price when picking a diamond.

Lab-grown diamonds, like natural diamonds, are graded and priced according to the 4Cs – carat weight, colour, clarity and cut.

Ms Wang Panpan, general manager of Chinese lab-grown diamond brand Hua Jew, which specialises in guochao, or jewellery with Chinese elements, said lab-grown diamonds are increasingly viewed as a commodity instead of a luxury item.

As a guarantee of its diamond quality and value, customers can trade in their Hua Jew jewellery when they get bored and upgrade to a higher-priced item any time, she said. The concept is similar to the Chinese government’s trade-in scheme for consumer goods such as TV and refrigerators, which is meant to boost consumption, she joked.

“If you’re in your 50s and you didn’t get to own a diamond when you got married, you can buy one now. In fact, you can buy one every year on your wedding anniversary and your birthday and whenever you feel like it. Why should you own just one?” she said.

A 26-year-old primary school teacher who was browsing LiLiang Diamond’s flagship store echoed this sentiment. Ms Guo Shuofan was shopping for a lab-grown diamond bracelet or necklace with a budget of 20,000 yuan to reward herself when she gives birth to her first child in March.

“I already have a lab-grown diamond wedding ring so I’m looking for something else to go with it,” said the Zhecheng native.

Listed diamond company LiLiang Diamond shop in Zhecheng, Henan.ST PHOTO: MICHELLE NG

Over at the 10-year-old diamond jeweller Zhe Zuan, I watched manager Zhang Yan help a middle-aged businessman from Shandong pick out four diamond jewellery pieces to take home as souvenirs. He paid around 13,000 yuan in cash.

Ms Zhang said the reality is that neither mined nor synthetic diamonds hold any investment value, unless they are natural gems of more than two carats. But prices of two-carat natural diamonds start from 200,000 yuan, nearly 30 times that of a lab-grown one of the same size, which puts it out of reach for many.

“Since there’s no room for appreciation, you might as well buy a cheaper diamond engagement ring and use the money saved to invest in gold, which holds its value,” she said.

Price wars

The rapidly growing lab-grown diamond industry has led Chinese manufacturers to flood the market, pushing companies into price wars and profit losses.

Ms Zhao Rui, head retail assistant at Chinese diamond brand Ke La Mei Zuan, or Keep Love Me, said there were only three or four synthetic jewellery shops in Zhecheng when hers opened in April 2024. Now, there are more than a dozen.

“As the market becomes more neijuan, you would rather make less money by giving more discounts than lose market share,” she said, using the Chinese term for involution, which describes excessive competition in a saturated space.

Falling prices could result in two scenarios, according to a November 2024 McKinsey report. Lab-grown diamonds could dominate the market outside niche luxury segments, much like classic cars or luxury vintage items. Alternatively, prices could drop so low that lab-grown diamonds become mere fashion accessories, ceasing to compete with natural diamonds.

“Assuming consumers cannot tell the difference between natural stones and lab-grown, all diamonds could simply go out of fashion, lose their appeal and are no longer seen as a must-have for engagement rings.” said the report.

In Zhecheng, Henan, there are signages lauding the county’s diamond prowess.ST PHOTO: MICHELLE NG

Daxue Consulting’s Ms Lai said concerns about the overproduction of lab-grown diamonds could be mitigated by their industrial applications such as in semiconductors and aerospace, which are key development areas for China in the tussle with the US.

“The consumer market for diamonds will continue to slow given China’s economic slowdown and falling marriage rates, and as it competes with gold’s cultural and value-storing significance, but its opportunities lie in the industrial applications,” said Ms Lai.

Henan Heshi Diamond hopes to break into the industrial diamond market to hedge against falling consumer jewellery prices and profit losses.

Mr Zhu said: “If we expand the application areas of our diamonds beyond the traditional consumer market and broaden our market base, it doesn’t matter so much if costs are dropping.”

• Michelle Ng is China Correspondent at The Straits Times. She is interested in Chinese foreign policies, property trends, demographics, education and rural issues.

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