China may soon displace India as the leading diamond processor in the world, thanks to its favorable government policies, vast pool of skilled technicians and robust domestic demand, China Daily reported.

In 2004, China was ranked the second largest diamond processor in the world, and since then the industry has been making rapid growth strides, the report said.

According to China Daily, China has around 80 diamond manufacturing companies located mainly in Guangdong, Zhejiang and Shandong provinces, together employing nearly 60,000 people. This compares with India, where nearly 1 million people are involved in the diamond industry, spread across thousands of factories in the country, it said.

Zhu Xinwei, general manager of Qingdao Jinghua Diamond and Jewelry, told China Daily that the economic recession has not hurt Jinghua's business, and the company is planning to recruit 200 new employees for its eight factories this year, to supplement the present strength of 3,000.

"Although the economic recession has brought down some of the smaller players, a majority of the Chinese companies are still operating smoothly," Zhu said.

By 2015, China's share of the global diamond processing business could grow to 21.3%, while India may see its share fall to 49%, from the present 57%, said a recent report published by KPMG, according to China Daily.

"The market is in an upward trend. In three years, China will surpass India in diamond processing," said Huang Zhaoyong, vice-president, marketing, Y&M Jewelry, a diamond processor.

Deng Weiguo, general manager of Aiffany Jewelry, a mid-scale player, agrees that the industry has been gaining ground in the country, the report said.

Robust domestic demand for diamonds has also increased the optimism of diamond processors. China is now "the fourth largest diamond consumer worldwide and demand is growing," said Wang Fang, an employee of Gems & Jewelry Trade Association of China.

The diamond trade in China got a major boost in 2006 when the government scrapped value added tax on imported roughs and reduced taxes on polished diamonds from 17 to 4%, said the report.

According to the Shanghai Diamond Exchange, in 2007, China's refined diamond imports jumped 194% year-on-year, to $147 million and it is estimated to have reached $900 million in 2008.

The report said many foreign importers are now sourcing diamonds from Chinese producers rather than India, due the high level of professionalism in the industry here. "So much so, many Indian firms are now setting up units here," it said

"The kind of expertise we need is missing in India," said Mihir Shah, owner of Indian firm Jayam NV which has a factory in Shandong province.

The path, however, is not easy for Chinese processors as their labor costs are still more expensive than India. "The cost of processing one carat in China is $17, compared with $10 in India," said Deng from Aiffany.

China  Daily.