Global Economics

Gem Traders Unfazed by Burma Turmoil


Hong Kong jadeite traders say their clientele doesn't care where stones come from, and they have stock to tide them over interruptions in supply

After the bloody September crackdown on dissidents, Buddhist monks are again on the march in Burma, denouncing the military government. As the crisis deepens, Western opponents of the military regime have singled out China for criticism, charging that Beijing props up the junta through purchases of fuel resources. However Chinese businessmen in Hong Kong and the mainland provide another, less visible form of support: trade in jadeite gemstones. The export of jadeite from Burma to Hong Kong and China, which has been going on for decades with little media scrutiny, is worth about $433.2 million a year, official figures for 2006 show.

That's 10% of the country's total exports, making jadeite sales vital to the Burmese government. And the figure doesn't include the hundreds of millions of dollars raised from sales of smuggled goods to Hong Kong and China. Where official sales are concerned, two departments of the regime at present conduct six auctions a year, selling hundreds of millions of dollars worth of rough stones and polished pieces of this rare, more highly valued form of jade.

Forthcoming Auction Postponed

But future sales are now in doubt. One of the organizers of the auction, the Myanmar Gems Enterprise (MGE), a unit of the Ministry of Mines, has already twice postponed its upcoming auction, which was originally scheduled for the last week of October. Although no official reason has been given, traders in Hong Kong speculate that the delay is a result of the country's political turmoil; the authorities, they believe, do not want foreigners entering the country while unrest continues.

A fax sent by the Burmese Consulate to a Hong Kong jadeite trade association says "the auction [will be] suspended for a week…from 14 November to 26 November." Kwok Man Chan, chairman of the Hong Kong Jade Assn., says the new schedule has not yet been confirmed by the consulate.

Certainly, some companies are not eager to conduct business-as-usual with the Burmese regime following the crackdown against peaceful demonstrations led by Buddhist monks in September. For instance, Cartier has announced that it will stop buying gemstones mined in Burma. And the Jewelers of America, a national association of jewelers, has urged Congress to amend a law enacted in 2003 that bans all imports from Burma, because the ban has a loophole allowing gemstone traders to import Burmese gemstones if they have been cut and polished elsewhere.

Still, while the gemstone boycott is likely to subject any trade link with Burma to intensifying scrutiny, executives from several Hong Kong jadeite companies say they are not worried. Provided the political situation in Burma does not worsen, Hong Kong traders will continue purchasing rough jadeite at auctions in Burma and selling the jewelry in Hong Kong and China, they say. "Business and politics should be separate. We're just businessmen and not politicians," says Kim Wing Yau of Kam Wing Cheong Jewelry. A 30-year veteran of the jadeite trade, Yau is a former chairman of the Hong Kong Jadeware Trades Industry & Commerce Assn.

Thriving Black Market

The main jadeite jewelry markets are in China, Hong Kong, and Taiwan. And the Rangoon regime has leverage, since Burma is the only country in the world with deposits of the gem-grade jadeite so highly coveted by Chinese consumers. Apart from the highly prized green variety, jadeite is available in a broad range of colors, such as yellow, lavender, black and white. Moreover there are several categories, like "icy" and "glass," that denote the stone's varying levels of translucence.

In 2005 the Burmese government declared jadeite a "national treasure" and mandated that all jadeite sales be centralized through auctions organized in Rangoon by the MGE. Because of the rising demand for jadeite from consumers in China, the junta has increased the number of MGE jadeite auctions to four from two. A consortium called the Union of Myanmar Economic Holdings (UMEH) also holds two auctions annually. (The UMEH and the Myanmar Economic Corporation are the two major industrial conglomerates controlled by the armed forces, dominating key economic sectors. Shares of UMEH are reserved for the military establishment.)

Around three thousand buyers attended the July auction, according to Hong Kong Jade Assn. Chairman Chan, with over 70% coming from China. The rest are mainly from Hong Kong, Chan adds.

Trading through unofficial channels has continued. Yau of Kam Wing Cheong says many visiting Burmese traders peddle stones from shop to shop on both sides of Canton Road, the strip in Kowloon's tourist district that is Hong Kong's jadeite trading center.

The postponement of the jadeite auction has not caused any panic in the Hong Kong trade. Since many large jadeite companies in Hong Kong bought large stocks of stones when availability was low, and hung on to them as an investment, they are not concerned about short-term supply fluctuations. "The supply has been so strong that prices of jewelry with medium- and lower-grade jadeite [up to $4,000 per item retail] are flat," says Yau. "Availability of jadeite has increased so much in recent years as mechanized mining methods have become widely used."

Robust Inventories

Traders have other sources of jadeite, too. Samuel Kung, owner of the eponymous Hong Kong trader and retailer, says that although the company purchases jadeite at the MGE's auctions, 90% of its goods come from from private companies in Burma, Hong Kong, and China. That provides them with a cushion even if the auctions don't resume soon. And even if the political situation in Burma worsens so much that Hong Kong traders are unable to purchase rough stones at the auctions, supply won't dry up altogether. "There are many visiting sellers and we have good connections with suppliers with huge stock," says Kung. "Although the political situation is delicate…we have established good relations with the [Burmese] people," he says.

Kwok Man Chan of Shiu Lun, a wholesaler and retailer, thinks that if the military government in Burma continues to postpone the auction for several more months, many traders will benefit as they reduce excess inventory. "This should have positive impact on the market as the demand will outstrip the supply and prices will increase," he says.

However prices are likely to tumble if the government suspends the supply for more than a year. Many miners in Burma are independent companies that have taken out concessions from the government and have to keep producing in order to amortize their investment in mining gear. They "are doing mechanized mining in a systematic manner and some mines are in operation 24 hours a day. Stock builds up very quickly. And if the suspension of jadeite exports continues for an extended period, prices will drop when [the ban is lifted and] the accumulated stock floods the market all at once," Chan says.

Shrugging Off Negative Publicity

Despite the negative publicity Burma is generating in the West, Hong Kong jadeite companies interviewed say they are not worried since the main market for jadeite is in Asia, particularly China and Hong Kong. Chan of Shiu Lun reckons that the U.S. and Europe together account for less than 1% of the global jadeite market. Shiu Lun operates an outlet in an upscale Hong Kong shopping mall which sells to consumers from the U.S. and Europe. "None [of them] has discussed the political situation in Burma," he says.

At Kam Wing Cheong, Yau says the company has held a large stock of jadeite and does not plan to replenish it yet. "However we will buy rare, fine-quality [stones] when we come across them," he says. "We will not stop purchasing stones in Burma because of the political situation. The political chaos did not start with the junta; the country has been plagued by the conflicts with ethnic minorities for years. This is totally out of our control."


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