Thursday, March 25, 2010

Chinese puzzle

As 21 Indian diamond traders languish in a Chinese jail Surat is feeling the tremors of the crisis, reports Hitesh Ankleshwariya

Just as the Gujarat diamond industry was beginning to shrug off the ill effects of two years of recession, it has been hit by a fresh crisis. Twenty-one diamond traders from the state have been jailed in China’s Shenzhen special economic zone for offences that are yet to be specified.

These traders, who ran diamond polishing units in China, have been in jail for two and a half months. However, the Chinese authorities are yet to frame charges against them. About a decade ago, China had invited diamond traders from Surat city to set up shop in the Shenzhen SEZ with the obvious intention of exposing its own merchants and workers to the intricacies of the trade.

The 100 diamond polishing units owned by Gujaratis in China have now been shut down. These merchants have moved to Hong Kong, leaving behind the millions of dollars that they invested in the Shenzhen SEZ.

Rohit Mehta, president of the Surat Diamond Traders' Association, says, “The diamond traders are accused of smuggling, but no case has been filed against them.” Diamond merchants in Gujarat are in a state of shock and are unwilling to speak on the matter for fear of queering the pitch further for those that are behind bars in China.

Gujarati diamond traders had headed for China, attracted by numerous rosy schemes. But the dream soured soon enough. Traders in Surat allege that China was only interested in learning diamond cutting and polishing skills from Gujaratis and cut into their monopoly over the business. “That aim has been achieved, and now they are bent on driving us out of the SEZ,” they say.

In fact, those in the know here point out that some Gujarati traders had seen through the Chinese gameplan early enough to pull out their men from Shenzhen before things could go out of hand. Many wound up their business in China and returned to Surat.

Many Surat diamond merchants have been visiting China for years. They are familiar with the way things work in Shenzhen. On condition of anonymity, one businessman says, “The Shenzhen SEZ is an hour’s drive from Hong Kong. Corruption is rampant here and local businessmen and officials are part of the racket. It is surprising that Gujarati traders are being victimised for playing by the rules of the game here.”
In Shenzhen, rough diamonds are smuggled in through a clandestine route to evade the import tax and 13 other duties levied by the Chinese government on the trade. “This illegal movement of diamonds happens with the collusion of locals. Officials and policemen turn a blind eye because they too are on the take,” says a Surat businessman.

So, diamond trading circles in Gujarat are mystified at the sudden clampdown in which a total of 50 people, including the Gujarati traders, were taken into custody for alleged diamond smuggling. But for want of proof, 15 Gujarati traders were let off. They are now in Hong Kong with their workers.

Ironically, relatives of the arrested diamond businessmen have not sought any kind of help from the Surat Diamond Traders Association. Says Mehta: “Not a single family has approached us. The information we have is based on media reports and accounts provided by businessmen based in Hong Kong. Till we get formal requests, we can’t help them.”

The president of the Gems and Jewellery Promotion Council, Vasant Mehta, says, “The Indian embassy in Beijing is working on this matter. So I do not see any reason for issuing any statement,”

Of the 21 arrested traders, 14 are from Palanpur, a north Gujarat town with a sizeable diamond trading community. All of them own thriving diamond units in Surat city.

Palanpur diamond industry president Jayantibahi Padhiyar says, “The Gujarat diamond traders’ business typically extends from Antwerp to Dubai. They earn billions of dollars in foreign exchange and thus serve the nation. It is a well known fact that the diamond trade is not a business of 100 per cent honesty and integrity. The Indian government must come to the rescue of the arrested traders as they are, first and foremost, Indian nationals.”

Padhiyar feels that the families of the traders are not trying hard enough to secure their release. “They are misguided by some local traders and brokers. That’s why the case has been not resolved yet,” he adds.

“I think what has happened in Shenzhen is a deliberate conspiracy to eliminate the Gujarati traders. We have reason to suspect that local Chinese traders and the police are hand in gloves in this matter. If this isn’t stopped right away, nobody will want to do business in China in the future,” says Padhiyar.

Some local traders believe that the arrests are part of a Chinese plan to exert pressure on India. Last October, India had made several drastic changes in its business visa policy. Under the new stringent rules, those who come to India on business have to return to their countries within a stipulated period of time. These changes have hit the Chinese businessmen the hardest.

The other theory doing the rounds in Surat is that the Chinese action stems from envy. The Shenzhen SEZ was dominated by Gujaratis, who made rapid progress here, and local Chinese traders did not take kindly to this success story. The traders are, therefore, being systematically targeted by the authorities.
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Source :
IIPM Editorial, 2009

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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