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The China Challenge: What China’s Rise Means for Ethical Jewelry (Part One)

BeijingThe following blog is the first in a three-part blog series on China and the jewelry trade.

 

Last June, as President Obama began a meeting with Chinese President Xi Jinping at a California ranch, dozens of the world’s diplomats had just finished another gathering in Kimberley, South Africa. The meeting between the presidents was a broad-ranging discussion of U.S.-China relations, whereas the South Africa gathering involved many nations and was dedicated to one topic only: diamonds. Both events, however, shared a similarity: the subtext of each one was China’s rise as a global power.

 

The gathering in South Africa was a meeting of the Kimberley Process (KP), the international certification scheme founded to combat blood diamonds. Created in 2002, the KP is composed of 80 member countries and includes participation from the diamond industry and civil society groups. The leadership changes every year, with a different government acting as Chair and hosting the two annual gatherings. The June meeting was held in Kimberley because South Africa holds the rotating Chair. (It just happens that the meeting took place in the town that is the KP’s namesake. Kimberley is where a chance diamond discovery in the late 1860s gave rise to the diamond industry and where discussions in 2000 led to the KP’s formation.)  China, however, is now Vice Chair. If all goes as expected China will become the KP Chair in 2014 – and next year’s KP meetings will be held somewhere in China.

 

When, in a few months, South Africa passes the KP leadership baton to China, that moment will be symbolic of the entire sweep of the jewelry industry’s history. South Africa is the historic heart of diamond mining, while China is not only the jewelry industry’s future, but its present. Indeed, China’s rise to the top of the KP leadership only formally ratifies the powerful role it already has assumed in the jewelry business. The country’s determined pursuit of natural resources around the globe, as well as the rising purchasing power of Chinese consumers, has transformed it into a major force in the industry, and one with an ever more influential role.

 

What all this means is that China could well determine how the jewelry industry evolves in the next few decades—whether conflict gems and minerals become a thing of the past or whether they have a very long shelf life. And that’s what concerns us.

 

China’s Challenge to Our Theory of Change

 

We established Brilliant Earth in 2005 based on the idea that we can change the jewelry industry by educating consumers about the social and environmental costs of irresponsible mining. Like other businesses with a social mission, we believe in consumer action. If gradually, more and more consumers demand ethical jewelry, then we assume that the jewelry industry—with or without help from the KP or national governments—will need to provide it.

 

But what if our theory of change is wrong? What if, even as we work hard to create an educated, socially-conscious customer base that demands an ethical supply chain, Chinese businesses and investors continue to permit or facilitate the same practices which have caused so much misery? We need to ask these questions, because when we look at the trade in precious metals and gems today, we can’t say that China’s influence is always positive. If blood diamonds are forged in the political, social, and economic pressures of modern Africa, China very often seems like the ring setting—the force that props them up and holds them in place.

 

We do not mean to sound critical or fearful of China’s rise. For a company such as ours that wants to help alleviate poverty in the developing world, we can only applaud the fact that hundreds of millions of people in China have been lifted out of poverty in recent decades. We expect that a wealthy China, through trade, will make Africa and the rest of the world richer too. Still, when we consider China’s current influence on the jewelry business, we’re forced to think about what it means for the viability of our company’s social mission—and what China’s rise means for other efforts to eliminate abuses from global supply chains.

 

Playing by a Different Set of Rules

 

China’s emergence as an economic powerhouse in Africa has been nothing short of remarkable. China, not the United States, is now Africa’s biggest trading partner. The total value of trade between Africa and China reached $198 billion in 2012, according to Chinese customs officials, and that total increased 19.3 percent from 2011. Oil and other natural resources, such as the precious metals and gems used in luxury jewelry, make up much of that trade. China, in turn, supplies Africa with manufactured goods like clothes and appliances.

 

It’s possible, even probable, that Chinese investment in Africa—part of a purposeful “Go Out” strategy by Beijing to pursue economic opportunities abroad—is a net positive for the continent. And yet, when we look at diamond and gold mining in Africa, it’s hard not to conclude that Chinese business interests in Africa often play by a different set of rules – rules which don’t always include concern for human rights, the environment, or democracy.

 

The role of Chinese gold miners in Ghana is a good example. The gold mining industry in Ghana, Africa’s second largest gold producer, has been transformed in recent years by a huge influx of Chinese migrants backed by Chinese investors. Most gold mines in Ghana don’t adhere to the highest labor and environmental standards – and gold mining is a very dirty business to begin with. But Chinese gold miners in Ghana are blamed for causing environmental damage, particularly water pollution, on an unprecedented scale. It seems that many of the Chinese miners come from a gold mining region in southern China where, under China’s Communist system, mining is conducted with few labor or environmental safeguards.

 

Another example is the different reactions of Chinese and Western business interests to a U.S. plan to cut off funding for the civil war in the Democratic Republic of Congo. That war, which dates to the mid-1990s, is a human disaster. More than five million people have died due to the conflict – mostly from related disease and starvation – making it one of the deadliest conflicts since World War II. More than two million people have been displaced, and so many women have been raped that eastern Congo, where the war is centered, has been called “the rape capital of the world.”

 

One reason for the persistence of the war is that certain “conflict minerals” – tin, tantalum, and tungsten as well as gold – found in products ranging from smartphones to jewelry have been financing Congo’s rebel warlords. In 2011, American and European companies began trying to cut off funding for the war by stopping mineral purchases from war-torn areas of Congo. They were prompted by a new “conflict minerals” disclosure requirement in the Dodd Frank financial reform bill of 2010 – as well as rising public concern about “blood smartphones.” However, the Chinese traders and middlemen who dominate much of Congo’s minerals trade continued as before, even buying up minerals at a 20 or 30 percent discount.

 

Some observers have worried that the Western response actually hurt Congo’s impoverished miners more than it stopped the war. Others contend that resulting transparency measures cut off 65 percent of rebel funding while still allowing miners in eastern Congo to earn a living. Regardless, the incident suggests that Chinese investors in Africa don’t always operate in the same realm of accountability as companies from the United States or Europe.

 

These examples alone, however, don’t fully account for the ways China in which often plays by a different set of rules in Africa’s jewelry trade.

 

In the next blog, we’ll examine how state-owned Chinese companies made backroom diamond deals in Zimbabwe that ignored human rights abuses and helped rig an election. 

 

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