China’s Diamond Inventory Dump

Jewelers have realigned their operations to meet a new consumer reality shaped by caution and changing values.

Image: Attendees closely examine the displays at the Jewellery & Gem Asia show that took place in Hong Kong in June. (Credit: Informa Markets Jewellery)

The downturn in China’s diamond and jewelry market has proven more disruptive than initially expected, with sluggish demand and widespread store closures prompting a significant offloading of inventory by local retailers.

An estimated $1 billion worth of polished diamonds was exported [in 2023-24] — on a net basis — from China, Paul Rowley, De Beers’ Executive VP of Diamond Trading, said during the company’s presentation at the JCK Las Vegas show last month.

“China’s retail market has shrunk, with lower sales and stores closing,” he noted. “But perhaps even more concerning was the exit of polished diamonds from China. The de-stocking and movement of inventory going into last year created serious pressure across the industry.”

The impact of China’s slowdown has therefore been two-fold: not only did demand plunge in what was, until recently, the world’s second-largest market for diamond jewelry, but the country also became an unexpected source of supply.

This shift came at a time when global diamond inventory levels were already elevated due to weak demand. Manufacturers scaled back rough purchases, while mining companies reevaluated production plans and the long-term viability of certain operations. Several mining projects were suspended in the past two years.

Beyond the Pandemic

China’s slowdown didn’t happen overnight, even if the pandemic is often cited as a turning point. The roots run deeper, tied to a mix of economic pressures and shifting cultural dynamics.

Even before COVID-19, the retail and luxury sectors were under strain. Political unrest in Hong Kong had already begun to affect consumer sentiment, while trade tensions with the US during the first Trump administration disrupted China’s export-driven economy. Arguably most impactful was the prolonged real estate slump that further dragged down growth.

The pandemic compounded these challenges. Extended lockdowns and a delayed reopening left consumers cautious. Rather than spending freely after Covid – as US consumers did – Chinese households emerged with a stronger focus on saving.

Cultural shifts are also playing a growing role. Younger generations are delaying marriage or choosing to remain single — a trend that accelerated during the pandemic and amid economic uncertainty. Rising costs of living and concerns about the future have contributed to this shift, as has China’s declining birth rate.

Marriage registrations fell to historic lows in 2024 to 6.1 million couples, according to China’s Ministry of Civil Affairs. That’s less than half the number recorded at the peak in 2013.

Growth by Gold

That said, the region’s major jewelers — Chow Tai Fook, Luk Fook, and Chow Sang Sang — experienced steady revenue growth following the pandemic. Their growth trajectories followed eerily similar patterns over the past two decades (see chart 1).

Chart 1: Based on company reports. Chow Tai Fook and Luk Fook fiscal year ends March 31. Chow Sang Sang follows calendar year.

This growth was largely fueled by demand for gold jewelry and related products, while sales of gem-set jewelry, which includes diamonds, steadily declined.

The divergence between the two segments is evident in Chow Tai Fook’s annual results. Sales of gem-set, platinum, and karat-gold jewelry dropped from a peak of HKD 26.51 billion (US$3.38 billion) in fiscal 2015 – the year ending March 31, 2015 – to HKD 12.52 billion (US$1.59 billion) in fiscal 2025. The segment brought consistent double-digit percentage declines over the past three years (see chart 2).

Chart 2: Based on Chow Tai Fook reporting in Hong Kong dollars, with conversions to USD made at constant rates.

Conversely, Chow Tai Fook saw a meteoric rise in gold jewelry sales between 2021 and 2023, even as demand for gold slowed last year after prices had spiked. In fiscal 2013, gem-set jewelry accounted for 38% of Chow Tai Fook’s total revenue; by last year, that share had fallen to just 14%.

Luk Fook Holdings reported a similar divergence between diamond sales and fixed-price gold jewelry, prompting a strategic reduction in its diamond wholesale business, which primarily supplies its franchise network. Growth in its fixed-price segment was attributed to "the group’s successful strategy of gradually replacing diamond products with other fixed price products, particularly fixed price gold products," according to its fourth-quarter sales update. Diamond sales have declined by high double-digit percentages for five consecutive quarters (see chart 3).

Chart 3: Based on reports by Luk Fook. Growth reflects year on year comparisons.

The shift away from diamonds, however, was less a proactive strategy and more a reaction to evolving consumer preferences, notes Ravi Bhansali, CEO of Rosy Blue Belgium.

“Chinese consumers lost faith in the stock market, real estate, and diamonds, and put all their faith in gold, so jewelers realigned their mix toward gold to match consumer sentiment,” he explains.

The Real Problem

With gold being the exception, many jewelers have been downsizing, marked by a wave of store closures over the past year. In fiscal 2025, Chow Tai Fook reduced its store network in China by 1,129 locations, Luk Fook closed a net 310 points of sale, and Chow Sang Sang shuttered 74 stores during calendar year 2024.

This marked the first decline in store counts for all three companies in over a decade (see chart 4).

Chart 4: Based on company reports and some estimates by The Diamond Press.

The aggressive expansion in 2021 and 2022 – amid cautious consumer sentiment – likely contributed to the global boom in diamond demand during that period. But by 2023, jewelers found themselves overstocked, having accumulated excess inventory in previous years, observes Bhansali.

It seems that jewelers began to unload that inventory in 2023, as they prepared to scale back operations — a process that would take effect in 2024.

“They’d melt the gold to capitalize on rising gold prices and sell the polished diamond content back into the market,” explained one Hong Kong–based diamond and jewelry wholesaler on condition of anonymity.

As a result, 2023 saw a surge of goods flowing out of China into major trading and manufacturing hubs, with Hong Kong acting as the primary gateway. That year, Hong Kong’s polished diamond exports rose sharply: up 36% to the U.S., 157% to India, 37% to the UAE, 43% to Belgium, and 52% to Israel, according to data from the Diamond Federation of Hong Kong, China (see chart 5).

Chart 5: Based on data published by the Diamond Federation of Hong Kong, China.

China’s inventory dump contributed to the broader slowdown in the global diamond market that took hold in 2023 — though traders emphasize it wasn’t the primary trigger. After all, it’s not unusual for jewelers to offload inventory, notes Bhansali.

“It can be a normal occurrence, but typically it's done to make room for new merchandise,” he explains. “That didn’t happen in China. While they were offloading inventory, there was no new demand to replace it. That was the real problem.”

A New Reality

The underlying issue, according to Tse Sui Luen Jewellery (TSL), a mid-sized Hong Kong–based jeweler, is a shift in consumer behavior and decreasing demand for natural diamonds.

“The jewelry industry has continued to experience a downward trend, mainly driven by a significant decline in consumer demand for natural diamond jewelry, especially in the mainland market,” TSL stated in its fiscal 2025 annual report released in May.

Still, the worst of the inventory correction may be over. Both Rowley and Bhansali told The Diamond Press that jewelers are now more comfortable with their stock levels, and the sell-off appears to have stabilized—albeit at reduced volumes.

Retailers are realigning with Chinese consumers, who are adjusting to a new reality — one where spending is driven more by actual income and assets than by confidence. That’s the conclusion of a recent McKinsey & Co. report, which found that consumers are reshaping their purchasing behavior in response to today’s more challenging economic environment.

It marks a clear departure from the boom years of the 2010s, particularly for the natural diamond industry. The inventory adjustments made in 2023 and the rationalization of store networks in 2024 appear to be strategic responses to align with the new reality of more restrained consumer spending.

While this has set a lower baseline for diamond demand, the hope is that it will also provide a more stable starting point for future growth.