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Viewing cable 08BEIJING4631, Ruby Trade in China: Opaque at Best

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Reference ID Created Released Classification Origin
08BEIJING4631 2008-12-22 23:06 2011-08-23 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Beijing
VZCZCXRO2903
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #4631/01 3572306
ZNR UUUUU ZZH
P 222306Z DEC 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 1534
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHGO/AMEMBASSY RANGOON 4743
RUEHBK/AMEMBASSY BANGKOK 6551
RUEHHI/AMEMBASSY HANOI 3780
UNCLAS SECTION 01 OF 05 BEIJING 004631 
 
STATE PASS TO USTR 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ETRD EFIN ECON EMIN PGOV PREL CN BM
 
SUBJECT: Ruby Trade in China:  Opaque at Best 
 
REF: A) STATE 127059 
 
THIS CABLE IS SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET 
DISTRIBUTION.  PLEASE HANDLE ACCORDINGLY. 
 
1. (SBU) This is a preliminary response to REF A request for 
information on the ruby trade in China. 
 
SUMMARY:  Burmese rubies apparently are entering China primarily via 
"walk across" trade at the Burma-China border as well as through 
other intermediaries, primarily Thailand.  The ruby trade is lightly 
regulated, if at all, by the Chinese government, documentation of 
the authenticity of rubies sold in China is optional, and origin 
testing for rubies is not widely used.  Trade volume numbers are not 
readily available.  MOFCOM reluctance to speak to embassy on this 
issue, as well as preliminary information gathered, suggests there 
would be significant challenges to establishing a reliable and 
verifiable chain of custody for rubies in China.END SUMMARY. 
 
2. (SBU) In response to STATE 127059, AmEmbassy Beijing officers 
interviewed, over the period of December 12 to December 19, local 
ruby sellers, ranging from small vendors to high-end jewelry shops, 
industry association representatives, PRC government officials, and 
gem experts to gather information on the ruby trade detailed below. 
ConGens Chengdu and Guangzhou also contributed substantially to this 
report.  Information from AmEmbassy Rangoon is also included to 
provide supporting context. 
 
Import Sources and Origin of Rubies 
----------------------------------- 
 
3. (SBU) Vice-Secretary-General of the Gems and Jewelry Trade 
Association of China (GAC), Yu Xiaojin, and the Vice-Director of the 
National Gemstone Testing Center of China (NGTC), Ke Jie, told 
emboffs that most of the rubies imported into China come from 
Thailand.  Neither was willing to venture an estimate of total 
import volumes of rubies, besides saying that the market for rubies 
in China is "very small."  In addition, ConGen Guangzhou reported 
that a manager at the Guangdong Provincial Gem and Precious Metal 
Testing Centre as well as the owners of two jewelry companies 
operating in Guangzhou estimate that 90 percent of colored gems 
imported into China are from Thailand. Again, the sources were not 
able to put a number on ruby imports into China.  Mr. Yu also noted 
that that most of the rubies imported into China are not accompanied 
by certificates of origin, so it is difficult to say conclusively 
whether rubies are mined in Thailand, for example, or simply cut and 
polished there. 
 
4. (SBU) Emboffs' sampling of five small retail jewelry shops in 
Beijing showed that rubies sold in the local market are tagged as 
Burmese, Vietnamese, Thai, and Sri Lankan.  Amembassy Rangoon notes 
that gems and jade "walk" across the Burmese border into China and 
Thailand, but says that there is no way to estimate how many move 
annually in this way.  Amembassy Rangoon also advises that there are 
indications that usually lesser quality stones are walked across the 
border, and high quality stones are seized inside Burma by the 
Government of Burma and sold at official GOB auctions that take 
place several times per year. (Note: Embassy Rangoon is clearly 
better placed to comment on the other side of the trade, we share 
this information here only to help put the Chinese information in 
context. End note.)  One local Beijing vendor even acknowledged that 
the rubies in his store were purchased at a Burmese auction and 
carried into China's Yunnan province by the shop owner without 
passing through any customs unit or administrative body.  According 
to ConGen Chengdu, conditions along the Burma-China border are well 
suited to foster high levels of unregulated trade between the two 
countries. 
5. (SBU) ConGen Guangzhou also highlights an October 2008 online 
article from Mizzima News stating that, "Despite the US embargo, 
Burma's military junta earlier this month held a gem exhibition in 
Rangoon, which generated more than USD 172 million.  The sale drew 
2648 gem merchants from nearly a dozen countries, including China, 
Thailand, Japan and Canada."  In addition, Guangzhou congenoffs 
recall seeing a Burmese Times article from October 2008 claiming 
that of the 2,648 gem merchants at the gem exhibition, 2,200 were 
Chinese. 
 
Chain of Custody - Report from ConGen Chengdu 
--------------------------------------------- 
 
6. (SBU) ConGen Chengdu advises that shop workers in the free trade 
zone on the Burma-China border near the Chinese town of Ruili say 
that nearly all the precious stones from Burma sold there first go 
to the Guangzhou area in the Chinese province of Guangdong for 
processing and then come back to Ruili for sale. (Note: Processing 
 
BEIJING 00004631  002 OF 005 
 
 
refers to designing the setting for the gem and completing the piece 
of jewelry.  It does not include cutting and polishing of the stone. 
End note.)  Shop owners in Ruili say that many Chinese come to the 
border to buy gemstone jewelry so they can feel more assured that 
they are not getting fake gems.  Even customers from Guangzhou 
travel to Ruili to buy Burmese stones that just came back from 
polishing in Guangzhou.  ConGen Chengdu speculates that such buyers 
-- who arrive by bus -- are tourists, as business owners and 
industry insiders might know that the stones can be purchased in 
Guangzhou and that the trip to Ruili is unnecessary. ( Note: 
interviewees in Ruili did not specify a specific pattern for rubies, 
but referred to all colored gemstones. End note.) 
 
Chain of Custody - Report from ConGen Guangzhou 
--------------------------------------------- -- 
7. (SBU) Like ConGen Chengdu, ConGen Guangzhou also reports that 
many gems go to Guangzhou for processing.  When asked by Congenoffs 
about how colored gems arrived at Guangzhou processing centers, the 
processing industry contacts said they were not sure, as the 
shipping arrangements and customs clearances were usually handled by 
the suppliers.  The manager of the Guangdong Provincial Gem and 
Precious Metal Testing Centre said rubies must be declared to 
customs and duties must be paid in China.  Mr. Li Chaoran, Executive 
Vice Chair of the GZ Jewelry Association, told Congenoffs that 
normally the rubies were carried by suitcase, but the buyers almost 
never ask how the rubies are imported, in order perhaps to avoid 
learning they are stolen gems. (Note:  Mr. Li would not specify 
where the rubies are arriving from via suitcase). 
 
8.  (SBU) Guangzhou industry contacts also report that even if the 
gems are originally from Burma, they are shipped first to Bangkok 
for cutting and polishing, then sent to Guangzhou for processing. 
These sources also advise that most rubies are tagged in the place 
they are polished and cut as originating there.  Therefore, it is 
difficult from here to verify that the estimated 90 percent of 
rubies coming into China from Thailand are actually mined in 
Thailand.  (Comment: Some portion of Thai-tagged gems that enter the 
Chinese market are likely Burmese.  End comment.) Guangzhou contacts 
said that technically there is no way to tell where rubies are from, 
and in practice, suppliers in Thailand label origin only for a few 
high-quality, large gems.  These contacts say it is not worth it to 
mark or certify the origins of the far more numerous, small gems. 
 
9. (SBU) A ruby vendor in Guangzhou also added that there are many 
hai uppies located in Guangzhou that are able to cut and polish 
the rubies there. The vendor said that sellers in the Guangzhou 
processing centers get many of their gems from Bangkok via Hong 
Kong, which helps them avoid duties and taxes.  The contact did not 
elaborate on the customs requirements for importing rubies into 
China. 
 
Processing Centers Outside Guangzhou 
------------------------------------ 
 
10. (SBU) ConGen Guangzhou reports that industry representatives in 
the area say there are two other major processing centers in 
Guangdong Province -- Shenzhen, which primarily serves the domestic 
market, and Panyu, which primarily serves the international market. 
These contacts said many of the gems processed in Shenzhen are 
shipped to department stores in northern China. 
 
11. (SBU) According to Mr. Yu at the GAC, another major processing 
center is located in the Chinese Province of Guangxi.  However, 
industry reports Mr. Yu has seen indicate that rubies polished in 
Guangxi come from Vietnam and Thailand and are of lesser quality 
than those from Burma. 
 
Certification of Authenticity and Proof of Origin 
--------------------------------------------- ---- 
 
12. (SBU) When asked by emboffs to show certificates of origin for 
rubies on display, one Beijing vendor claiming to sell only Burmese 
rubies said he did not have certificates of origin for his 
merchandise, but averred that the origin of the rubies could be 
determined by examining the gems with the naked eye.  He claimed 
that those with the deep "pigeon's blood" red color or those rubies 
that have a visible white colored star inside the gem are the 
supposed marks of a natural Burmese ruby.  (Note: According to 
industry experts in Beijing, unless you are a gemologist, it is very 
difficult to tell Burmese rubies and jade from that of other 
countries. End note.)  Mr. Yu from the GAC stated that most 
customers in China do not ask about the origin of the rubies they 
buy, so certificates of origin are not sought by ruby dealers.  In 
addition, a Taiwanese industry contact who owns a jewelry processing 
factory in Fuzhou says that when his company buys rubies, he only 
 
BEIJING 00004631  003 OF 005 
 
 
looks at the quality and not the source of the gem.  However, some 
local vendors in Beijing agree that Burmese rubies are the best 
quality. 
 
13. (SBU) Despite not having certificates on hand to prove origin, 
many Chinese ruby dealers obtain a "certificate of authenticity" 
issued in China for the gems they sell in their shops.  These 
domestically-issued certificates state that the gem is authentic, 
give the color and size of the gem, and list serial numbers to 
identify each gem.  The origin of the stone is not listed on the 
domestic certificates of authenticity.  According to Mr. Yu, 70 
percent of these domestic certificates are issued by the NGTC, which 
falls under the authority of the Chinese Ministry of Land and 
Resources (MLR), but is under direct supervision of the PRC 
Administration of Quality, Supervision, Inspection, and Quarantine 
(AQSIQ).  (Note: MLR and AQSIQ are bureaucratically separate 
entities. End note.) 
 
14. (SBU) Another laboratory that is widely used in China is the 
National Jewelry Quality Supervision and Inspection Center. 
Vice-Director of the NGTC, Ke Jie, told us there are less than 100 
labs in China that can offer legitimate authentication certificates 
for colored gems, and all of these labs are supposed to be monitored 
by the AQSIQ. However, when ConGen Guangzhou spoke to the manager of 
the Guangdong Provincial Gem and Precious Metal Testing Centre, he 
stated that his lab is "affiliated" with the government.  According 
to this contact, each province has its own testing centers that are 
not government-owned, which he described as "service providers, or 
trustees, that provide objectivity for the testing process."  Asked 
if his lab was regulated by AQSIQ, he said it was affiliated with 
Guangdong Technical Supervision Bureau of Guangdong Provincial 
Government.  He added that the testing market is competitive and 
vendors and suppliers can choose different testing centers. 
 
15. (SBU) The domestically-produced certificates generally cost RMB 
50, according to Vice-Director Ke, and the revenue generated from 
the cost of certification supports the operating expenses of the 
labs, "much like nonprofits in the U.S."  Ke said domestic 
certificates are not required in order to sell rubies in China, but 
she believes it is better for business to obtain these certificates, 
as customers generally ask about them. 
 
16. (SBU) In Beijing, every vendor Emboffs visited produced a 
domestic certificate of authenticity for each of their rubies on 
display, but each vendor showed a certificate from a different 
Chinese institution, and one of the five vendors had a certificate 
issued by the NGTC.  Vice-Director Ke estimates that 70 percent of 
the gems the NGTC certifies per year are diamonds, 20 percent are 
jade, and the remaining 10 percent are colored gems.  She would not 
estimate how many rubies the NGTC certifies each year.  Ke noted 
that the NGTC does not typically perform gem origin testing, but can 
do it in special circumstances when the gem in question is 
potentially of great value. 
 
17. (SBU) In addition to the above described domestic certificates, 
some higher-end Beijing stores have international certificates 
ostensibly issued by GemResearch SwissLab (GRS).  These certificates 
allegedly verify the authenticity of their rubies.  (Note: The 
closest GRS lab is located in Thailand. End note.)  The GRS 
certificates Emboffs saw in local high-end stores did not show 
origin. However, the Geological Museum of China in Beijing does have 
GRS certificates showing the probable origin of some of the stones 
on display.  Vice Secretary-General Yu, who also works at the 
Geological Museum of China, confirmed that when he asks for a GRS 
certificate for a museum stone, he requests GRS include the probable 
origin of the gem on the certificate, for which GRS laboratories 
test.  He went on to add that most Chinese ruby dealers request that 
the origin information not be included on GRS certificates, although 
it does not cost any additional amount to include this information. 
(Comment:  In the case of rubies, we would speculate this is done to 
allow dealers to misrepresent gems as the more highly-valued 
"Burmese rubies." End comment.) 
 
PRC Government Involvement 
-------------------------- 
 
18. (SBU) Aside from the testing centers' affiliation with 
government agencies, it is difficult to obtain information about 
Chinese government involvement with the ruby industry.  For example, 
when asked about reporting rubies to Customs, some vendors in 
Beijing said their stores do not need to register the rubies with 
Customs when the rubies are imported.  Some avoided the question 
entirely.  Contacts in the industry indicated that the market for 
rubies in China is so small that the government simply does not care 
about regulating it.  Mr. Yu from the GAC speculated that 95 percent 
 
BEIJING 00004631  004 OF 005 
 
 
of the jewelry market in China is jade and jadeite, and that rubies 
only make up approximately 3 percent of the remaining 5 percent of 
the overall market. 
 
19. (SBU) Ms. Dang Yingjie, Director of Bilateral Relations for 
China's General Administration of Customs, told Embassy Customs 
Officer that China's Free Trade Agreement with ASEAN requires that 
importers pay a 5 percent tariff for rubies coming into China.  As 
of January 1, 2009, however, this tariff will be eliminated. 
According to the law, all gems should be declared at the place of 
entry into China, with the duty payable online or in cash.  Ms. Dang 
said that the revenue from this duty goes to the PRC central 
government, but gave no further information about what specific 
agencies receive the funds.  Ms. Dang Yingjie stated that the 
Chinese government does not tax anything beyond the 5 percent (soon 
to expire) stipulated by the ASEAN FTA. 
 
20. (SBU) Exploration of the PRC General Administration of Customs 
website, www.customs.gov.cn, revealed that no import statistics for 
jewelry is available, and jewelry is not on the list of Major 
Commodities Imported into China.  However, 2006, 2007 and 2008 
export statistics available on the website show that the list of 
Major Commodities Exported out of China has a category called 
"Precious Metals and Jewelry."  It shows that the aggregate export 
amount for this category in November 2006 was 678,264 kilograms, 
which was an 8.2 percent increase from November 2005.  In November 
2007, the aggregate export amount of "Precious Metals and Jewelry" 
was 714,865 kilograms, an increase of 5.4 percent from November 
2006.  As of November 2008, 599,698 kilograms was exported, which 
the website estimates is a drop of 16.1 percent from November 2007. 
Export countries are not listed on the website.  This category does 
not break out diamonds, high-value pearls, or any other gems. 
 
21. (SBU) Rubies are not listed on AQSIQ's "Catalogue of Commodities 
Subject to Inspection and Quarantine," but diamonds and high-value 
pearls are. 
 
MOFCOM Initial Response Unfavorable 
----------------------------------- 
 
22. (SBU) On November 4, Emboffs faxed a summary of the 2008 Block 
Burmese JADE Act to Mr. Du Shuang at MOFCOM's U.S. Desk.  Embassy 
also sought comments on the act from Mr. Wang Xu, Director of the 
U.S. Desk.  MOFCOM did not respond to several follow-up phone calls 
and emails.  On December 17, a local Economic Specialist in the 
Economic Section finally reached Mr. Wang on the phone.  Mr. Wang 
advised he had already forwarded the JADE Act information to the 
"appropriate MOFCOM offices," in particular to MOFCOM's WTO 
Department.  He noted that the WTO department at MOFCOM believed the 
JADE Act was WTO non-compliant.  Embassy will follow up further with 
MOFCOM. 
 
Export Markets 
-------------- 
 
23. (SBU) According to Mr. Yu at the GAC, rubies finished in China 
tend to stay in the Chinese market.  He notes that Thailand has a 
much bigger export market because their polishing, cutting, and 
processing are more advanced.  When asked to describe their 
clientele, one small Beijing ruby vendor said that mostly Americans 
look for Burmese rubies in China in order to take the rubies to the 
U.S. and sell them at a much higher price.  In addition, according 
to ConGen Guangzhou industry contacts, U.S. and European companies 
are the two biggest customers at the Panyu processing center. 
 
Challenges to Establishing Chain of Custody for Rubies 
--------------------------------------------- --------- 
 
24. (SBU) Emboffs also met with the Director of the Division of 
Rules of Origin at the PRC General Administration of Quality, 
Supervision, Inspection, and Quarantine (AQSIQ), Kang Yuyan, to 
learn more about how China implements the Kimberley Process 
Certification Scheme (KCPS).  AQSIQ implements KCPS in China.  Most 
of the work is done by 26 local China Inspection and Quarantine 
Offices, or "CIQs," located throughout the country, which do on-site 
inspections of shipments of rough diamonds.   Kang said each 
inspection includes a thorough review of the documentation filed by 
the exporting country and verification that the package of rough 
stones matches in detail an accompanying KP certificate.  CIQs do 
not have instruments to check the origin of stones, nor is it 
required to do this in order to issue a PRC Release Note for the 
package of rough diamonds.  China does issue official Certificates 
of Origin, but does so by inspecting the shipment for tampering and 
the documents accompanying the shipment.  Ms. Kang noted that since 
China only trades rough diamonds with countries that participate in 
 
BEIJING 00004631  005 OF 005 
 
 
the Kimberley Process, the documents from the exporting countries 
can be trusted.  (Note: If the CIQs, responsible for the enforcement 
of the Kimberley Process in China, do not have instruments or 
expertise to test the origins of rough diamonds, it is likely that 
even if it wanted to, the Chinese government would not be able to 
implement origin testing of gems at customs sites.  The NGTC, 
however, does have the limited ability to perform origin tests.  End 
note.) 
 
25. (SBU) When asked about the possibilities to establish a paper 
trail for rubies entering and leaving China, Ms. Kang responded that 
the Kimberley Process was very costly to implement in China.  The 
importers and exporters of rough diamonds pay administrative fees 
for the applications and certificates, but she said the Chinese 
government shoulders a majority of the costs associated with the 
process. 
 
26. (SBU) Ms. Kang also pointed out that there is no international 
structure to facilitate Chinese regulation of the ruby trade.  She 
averred that it would probably require a UN resolution or a similar 
mandate to build a Kimberley Process-like structure to effectively 
regulate the ruby trade. 
 
RANDT