A decade ago, synthetic, lab-grown diamonds felt like the future of the jewelry industry. As demand grew, world-leading diamond companies like De Beers quickly launched jewelry lines featuring artificial diamonds, marketing them as a low-cost alternative for younger and more money-conscious consumers.

But market booms rarely last forever. This June, De Beers announced it was getting out of the lab-grown diamond jewelry business. The problem wasn’t slowing demand, but a raft of cheap synthetic diamonds that had flooded the market — and eaten into the company’s bottom line.

Many of these cheap diamonds are coming from factories in Asia, especially China. In central China, the nexus of the country’s diamond industry, new technologies caused a boom in synthetic diamond production; now, with prices falling through the floor, companies are wondering what’s next.

This is how China got a cut of the global diamond trade.

Synthetic diamonds, real demand

The pandemic was a roller coaster for the global diamond trade.

At first, with people around the world confined to their homes, the luxury and jewelry industries saw a surge in online sales, which drove diamond prices to historic highs in early 2022.

That was followed quickly by a slump. In March 2022, amid concerns about inflation and the overheating of the global economy, the United States Federal Reserve began hiking interest rates. Other central banks soon followed. The abrupt shift from easy money to tight financial conditions hit the luxury industry hard, as consumers became more cautious and began reducing spending on non-essential items, including diamonds.

But not all diamond sales were hit equally. Demand for lab-grown diamonds, which the International Gem Society estimates cost between 40% and 50% less than their natural counterparts, has continued to grow in recent years. Costs, however, have plummeted. While a couple with $6,000 to spend on an engagement ring can still get roughly the same-sized natural diamond as in 2015, the price of lab-grown synthetics is now roughly a quarter of what it was that year, according to research by industry consultant Paul Zimnisky.

From crops to diamonds

China’s first lab-grown diamond was created in 1963, at a research institution in Beijing. Twenty years later, Feng Jinzhang, an engineer from the little-known county of Zhecheng, in the central Chinese province of Henan, opened the Shaoyuan Diamond Factory in his hometown.

The industry developed rapidly in Zhecheng, which was once a sleepy agricultural region. By the late 1980s, diamond processing enterprises had sprung up throughout the county. Today, Zhecheng is known domestically as the “Diamond Capital of China.” Although statistics are hard to come by, local officials like to claim that China accounts for half of the lab-grown diamonds produced worldwide — and that 80% of this output comes from Henan.

Underlying this growth is an emphasis on producing diamonds cheaply and quickly. Most lab-grown diamonds are produced by one of two methods: the high-temperature high-pressure process (HTHP) or the chemical vapor deposition process (CVD).

The HTHP approach, which is the most common among Chinese diamond growers, is cheaper and faster, but yields lower purity diamonds. CVD, which is favored by Indian producers, is more costly and time-consuming, but produces higher purity stones.

Overcapacity

This single-minded focus on output helped grow Henan into a center of synthetic diamond production, but with more Chinese and international manufacturers piling in, the lab-grown diamond industry has become oversaturated.

With supply far outstripping demand, jewelers’ revenues have collapsed. Signet Jewelers Limited, the world’s largest diamond jewelry retailer, experienced a 9.26% year-on-year revenue decline in Q1 2024. Chinese market leaders North Industries Group Red Arrow, Henan Huanghe Whirlwind, and Henan Province Liliang Diamond also reported significant year-on-year declines in both revenue and net profit for Q1 2023.

Between overcapacity and falling prices, many firms are refocusing on industrial diamonds. That includes De Beers, which has announced plans to pivot its lab-grown diamond operation to emphasize industrial uses. In a recent prospectus, Chinese firm Henan Huanghe Whirlwind said it would look to grow more diamonds for semiconductors, solar, and other emerging industries.

(Header image: From VCG and re-edited by Sixth Tone)