India's Gems & Jewellery Export Promotion Council (GJEPC) is said to be seriously considering pulling out of its China-based diamond cutting and polishing business following the arrest of 21 Indian diamond traders last week, Commodity Online reported.



Chinese authorities arrested 21 Indian nationals last week in Shenzhen on suspicion of diamond smuggling. So far, the Indian diamond industry has a refused to divulge identities of the detainees, the majority of whom are Surat Diamond Association employees.



According to the report, it is believed that about 50% of India’s total diamond exports to China is conducted via illegal methods, i.e. done through Hong Kong, to save on tax and be competitive: Diamond imports into China entail a 4% tax for members of the Shanghai Diamond Exchange and 18% for non-members. Diamond imports into Hong Kong do not carry taxes and as such, it is attractive for any diamond merchant to export precious stones to Hong Kong.