China's Pearl City, But for How Long?

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Mike Clarke / AFP / Getty

A model wears a pair of natural pearl eari pendants at a Christie's auction house in Hong Kong.

Pearl lovers, Hong Kong is your oyster. Just ask Joanne Larby. The Chicago accountant-cum-tourist was recently rubbing a strand against her teeth to verify the pearls' authenticity at a jewelry counter on Kowloon's Nathan Road. The teeth-test, of course, is overrated; rubbing the pearls against one another is more effective without risking damage to the gems. But Larby wasn't taking any chances. This was the 32nd string of pearls Larby had run across her pearly whites that day. "The pearls are just so cheap here," she explained, "I'm not convinced they're real."

She's right, in a sense. Real, better known as natural, pearls are practically impossible to buy in Hong Kong or anywhere else, these days. Natural pearls occur when foreign material, usually a stone or parasite, enters an oyster's shell and it can't expel the irritant. The mollusk instead coats the intruder with nacre, the secretion used to make its shell, forming a pearl. Once, they were the exclusive preserve of royalty — the fact that only 1 in 10,000 oysters may contain a round natural pearl made them more valuable than diamonds.

The pearl market changed in the early 1890s, however, when Japan's Kokichi Mikimoto first successfully cultured pearls, artificially mimicking the natural process and allowing pearls for the first time to be matched for necklaces. A century later, Chinese farmers have further perfected this technique, yielding more than 1,500 tons of freshwater pearls last year, or 95% of the world's pearl production. "Today, the quality of Chinese cultured pearls matches some of the best natural pearls ever found," says Hong Kong gemologist Henry Cheng.

As a result of China's output, pearl prices have dropped dramatically over the past five years — by as much as 60% by some estimates — and pearls are suddenly as trendy as when Jackie Kennedy popularized them in the early 1960s. Not that these are your mother's pearls. The jewels now come in all shapes and sizes. Colors are equally diverse, ranging from the bright white of the Akoya variety to freshwater pastels to Tahitian black pearls. Unlike diamonds, pearls have no common grading system, and value is judged on seven factors: size, color, shape, luster, surface quality, nacre and how well they match. In the end, though, "it's really about what you like," says jeweler Alex Chan.

There's no dispute, however, over the fact that Hong Kong is the place to buy them. Since the late 1980s, the city has slowly usurped Kobe, Japan, as Asia's leading pearl trading post, helped in part by a red-tide disease that destroyed most of Japan's major pearl farms in the 1990s. Hong Kong also enjoys its proximity to China's pearl farms, and the absence of import taxes. Annual trade shows now not only bring buyers from around the globe for China's freshwater jewels, but also auctions for the products of the world's largest saltwater producers, Australia's Paspaley and Tahiti's Robert Wang. Hong Kong is now the world's fourth largest exporter of fine jewelry behind Italy, the U.S. and India, totaling nearly $4 billion in 2005. "Hong Kong has made itself into the perfect compliment to China's dominance in pearl production," says Sonny Hung, spokesman for the jeweler Man Sang.

Still, being China's middleman can be both a blessing and a curse. The current low prices for pearls may also be a product of cheap labor. Japan's pearl farmers are organized into an umbrella association that sets prices and offers welfare to those who fall on hard times. By contrast, the Chinese producers are more vulnerable to exploitation: "Chinese farmers might as well be selling fruit or cattle," Cheng says. "Their only hope is to cover expenses. They have no idea how valuable their product can be and don't ask for higher prices."

Hong Kong also operates under the constant fear that it could one day be bypassed by China in its dealings with the global pearl market. Man Sang, for one, is hedging its bets. The jewelry company has invested more than $200 million in the 1.2 million square miles China Pearls and Jewellery City in Zhuji, a Yangtze River town that provides 80% of China's freshwater pearl trade volume. When it is completed this fall, the enormous marketplace is expected to house more than 5,000 pearl shops, and Man Sang aims for it to become "the world's pearl industry hub."

As foreigners travel more and more extensively on the mainland, outlets such as Zhuji, not far from Shanghai, could mean a decreasing number of pearl shoppers for Hong Kong. Even Joanne Larby, headed next to Beijing, decided to hold off on her shopping. "If bargains are this good here," she says, "imagine how great they'll be in China."