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                                                                     EXHIBIT 4.2

                              EMPLOYMENT AGREEMENT


The parties to this agreement are LJ International Inc., a British Virgin
Islands Company (the "Company") and YIH Yu Chuan (the "Executive"). The Company
and the Executive hereby agree as follows:

1.       EMPLOYMENT AND DUTIES

         The Company shall employ the Executive and the Executive shall serve
         the Company as President and Chief Executive Officer of the Company.
         The Executive shall use his best efforts to promote the interests of
         the Company, and shall perform his duties in relation to the Company
         and/or its subsidiaries (collectively "the Group") faithfully and
         diligently, consistent with sound business practices.

2.       TERM OF EMPLOYMENT

         The Executive shall be employed by the Company under this Agreement for
         a period of three (3) years commencing as of the date of this
         agreement.

3.       REMUNERATION AND REIMBURSEMENT

         (A)      Subject to Clause 5, the Executive shall receive during the
                  continuance of the Appointment:

                  (1)      A salary at the rate of HK$1,800,000 per annum such
                           salary to accrue on a day to day basis (including any
                           sum receivable by the Executive as directors' fee
                           from any company in the Group) and to be payable
                           monthly in twelve equal installments in arrears on
                           the last day of each calendar month provided that if
                           the Appointment is terminated prior to the end of a
                           calendar month, the Executive shall only be entitled
                           to a proportionate part of such salary in respect of
                           the period of service during the relevant month up to
                           the date of termination. Such salary shall be
                           adjusted on annual basis at a rate to be determined
                           by the Board as its absolute discretion having regard
                           to the operating results of the Group and the
                           performance of the Executive.

                  (2)      An annual management bonus of a sum to be determined
                           by the Board at its absolute discretion having
                           regard to the operating results of the Group and the
                           performance of the Executive during the relevant
                           financial year or any proportionate part thereof in
                           which service of the Executive pursuant to this
                           Agreement is rendered. The management bonus shall be
                           payable in arrears in respect of each relevant
                           financial year within one month after the issue of
                           the consolidated audited accounts of the Group for
                           such financial


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                           year. The amount payable to the Executive shall be
                           decided by majority decision of the members of the
                           Board present in the meeting called for that purpose
                           provided that the Executive shall abstain from voting
                           and not be counted in the quorum in respect of the
                           resolution regarding the amount so payable to
                           himself.

         (B)      The Executive shall continue to receive his salary during any
                  period of absence on medical grounds up to a maximum of 12
                  weeks in any period of 12 months provided that the Executive
                  shall if required supply the Company with medical certificates
                  covering the period of absence.

         (C)      The Executive shall be reimbursed all reasonable out-of-pocket
                  expenses (including expenses of entertainment subsistence and
                  travelling) incurred by him on the Group's business which
                  expenses shall be evidenced in such manner as the Board may
                  require.

         (D)      The Executive will be entitled to the benefits of any medical
                  or provident fund scheme as maybe maintained by the Group
                  from to time.

         (E)      The Executive shall be entitled to 12 working days paid
                  vacation each year.

4.       OTHER BENEFITS

         The Executive shall be entitled, during the continuance of the
         Executive's engagement hereunder, to the use of a motor car and the
         Company shall pay all vehicle registration fees, taxes and insurance
         premiums in respect of the car and shall pay or reimburse against
         receipts all maintenance, repair and other running costs in respect of
         the car and the cost of petrol.

5.       TERMINATION OF THE APPOINTMENT

         (A)      Without prejudice to the accrued rights (if any) or remedies
                  of either party under or pursuant to this Agreement:

         (1)      the Executive shall be entitled to terminate the Appointment
                  by two months' notice in writing to the Company if any money
                  payable by the Company to the Executive under or pursuant to
                  this Agreement is not paid in full by the Company to the
                  Executive within a period of 30 days from any written demand
                  by the Executive for the payment thereof:

         (2)      the Company shall be entitled to terminate the Appointment
                  without any compensation to the Executive:

                  (a)      by not less that three months' notice in writing
                           given at any time while the Executive shall have been
                           incapacitated or prevented by reason of ill health,
                           injury or accident from performing his duties
                           hereunder for a period of or periods aggregating 90
                           days in the proceeding 12 months provided that if at
                           any time during the currency of a notice given
                           pursuant to this sub-paragraph the Executive shall
                           provide a medical certificate satisfactory to


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                           the Board to the effect that he has fully recovered
                           his physical and/or mental health and that no
                           recurrence of illness or incapacity can reasonably be
                           anticipated the Company shall withdraw such notice;
                           or

                  (b)      by summary notice in writing if the Executive shall
                           at any time:

                           i.       commit any serious or persistent breach of
                                    any of the provisions herein contained (and
                                    to the extent that such breach is capable of
                                    remedy shall fail to remedy such breach
                                    within 60 days after within warning given by
                                    the Board);

                           ii.      be guilty of any given misconduct or willful
                                    neglect in the discharge of his duties (and
                                    to the extent that such breach is capable of
                                    remedy shall fail to remedy such breach
                                    within 60 days after written warning given
                                    by the Board);

                           iii.     become bankrupt or have a receiving order
                                    made against him;

                           iv.      become a lunatic or of unsound mind;

                           v.       absent himself from the meetings of the
                                    Board during a continuous period of three
                                    months, without special leave of absence
                                    from the Board, and his alternate director
                                    (if any) shall not during such period have
                                    attended in his stead;

                           vi.      become prohibited by law from acting as a
                                    director;

                           vii.     be guilty of conduct tending to bring
                                    himself or any company in the Group into
                                    disrepute;

                           viii.    be prohibited by law from fulfilling his
                                    duties hereunder; or

                           ix.      be convicted of any criminal offence (other
                                    than an offence which in the reasonable
                                    opinion of the Board does not effect his
                                    position as a director of the Company).

         (B)      If the Company becomes entitled to terminate the Appointment
                  pursuant to subclause (A)(2)(b) it shall be entitled (but
                  without prejudice to its right subsequently to terminate the
                  Appointment on the same or any other ground) to suspend the
                  Executive without payment of salary in full or in part for so
                  long as it may think fit.

         (C)      If the Executive shall have refused or failed to agree to
                  accept without reasonable grounds an appointment offered to
                  him on terms no less favourable to him than the terms in
                  effects under this Agreement, either by a company which has
                  acquired or agreed to acquire the whole or substantially the
                  whole of the undertaking and assets of the Company or which
                  shall own or has agreed to acquire the whole or not less than
                  90% of the issued share capital of the Company, the Executive
                  shall have no claim against the Company by reason of


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                  the subsequent voluntary winding up of any company in the
                  Group or of the disclaimer or termination of this Agreement by
                  the Company within three months after such refusal or failure
                  to agree.

         (D)      On the termination of the Appointment howsoever arising the
                  Executive shall:

                  (1)      at any time and from time to time thereafter at the
                           request of the Company resign from office as a
                           director of the Company and all offices held by him
                           in any company in the Group and shall transfer
                           without payment to the Company or as the Company may
                           direct any qualifying shares provided by it or any
                           shares held by the Executive as nominee for the
                           Company or any company in the Group provided by it
                           and the Executive hereby irrevocable appoints the
                           Company to be his attorney and in his name and on his
                           behalf to sign and do any documents or things
                           necessary or requisite to give effect thereto and a
                           certificate in writing signed by any director or by
                           the secretary of the Company that any instrument or
                           act falls within the authority hereby conferred shall
                           be conclusive evidence that such is the case and any
                           third party shall be entitled to rely on such
                           certificate without further enquiry provided however
                           that such resignation or resignations shall be given
                           and accepted on the footing that it is or they are
                           without prejudice to any claims which the Executive
                           may have against any such company or which any such
                           company may have against the Executive arising out of
                           this Agreement or of the termination of the
                           appointment; and

                  (2)      forthwith deliver to the Company all books,
                           documents, papers, materials, credit cards (if any)
                           and other property of or relating to the business of
                           the Group which may then be in his possession or
                           under his power or control.

         (E)      Save as expressly provided herein, neither party may terminate
                  this Agreement.

6.       CONFIDENTIALITY

         The Company shall not, at any time during or after his employment under
         this agreement, disclose to any third party, except in the performance
         of his duties under this agreement, any confidential information
         regarding the Company's customers, suppliers, trade secrets or
         business. The Executive shall return all tangible evidence of such
         confidential information to the Company prior to or at the termination
         of his employment.

7.       WAIVER

         (A)      Time is of the essence of this Agreement but no failure or
                  delay on the part of either party to exercise any power, right
                  or remedy hereunder shall operate as a waiver thereof, nor
                  shall any single or partial exercise by either party of any
                  power, right or remedy preclude any other or further exercise
                  thereof or the exercise of any other power, right or remedy by
                  that party.

         (B)      The remedies provided herein are cumulative and are not
                  exclusive of any remedies provided by law.



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8.       FORMER SERVICE AGREEMENTS

         This agreement contains a complete statement of all the arrangements
         between the parties with respect to its subject matter, supersedes all
         existing and former agreements between them with respect to that
         subject matter, may not be changed or terminated orally and any
         amendment or modification must be in writing and signed by the party to
         be charged.

9.       NOTICES

         All notices, requests, demands, consents or other communications to or
         upon the parties under or pursuant to this Agreement shall be in
         writing addressed to the relevant party at such party's address set out
         below (or at such other address as such party may hereafter specify to
         the other party) and shall be deemed to have been duly given or made:

         (A)      in the case of a communication by letter 48 hours after
                  despatch or, if such letter is delivered by hand, on the day
                  of delivery;

         (B)      in the case of communication by telex or facsimile, when sent.

                           The Company's address:

                           Unit 12, 12/F., Block A, Focal Industrial Centre
                           21 Man Lok Street, Hunghom
                           Kowloon, HONG KONG

                           The Executive's address:

                           House No. K80, Stage IV, Marina Cove, Sai Kung
                           HONG KONG

10.      ASSIGNABILITY

         This Agreement shall be binding upon and ensure to the benefit of each
         party hereto and its successors and assigns and personal
         representatives (as the case may be), provided always that the
         Executive may not assign his obligations and liabilities under this
         Agreement without the prior written consent of the Company.

11.      RELATIONSHIP

         None of the provisions of this Agreement shall be deemed to constitute
         a partnership or joint venture between the parties for any purpose.



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12.      AMENDMENT

         This Agreement may not be amended, supplemented or modified except by a
         written agreement or instrument signed by or on behalf of the parties
         hereto.

13.      SEVERABILITY

         Any provision of this Agreement prohibited by or unlawful or
         unenforceable under any applicable law actually applied by any court of
         competent jurisdiction shall, to the extent required by such law, be
         severed from this Agreement and rendered ineffective so far as is
         possible without modifying the remaining provisions of this Agreement.
         Where, however, the provisions of any such applicable law may be
         waived, they are hereby waived by the parties to the full extent
         permitted by such law to the end that this Agreement shall be a valid
         and binding agreement enforceable in accordance with its terms.

14.      LAW AND JURISDICTION

         This Agreement shall be governed and construed in all respects in
         accordance with the laws of Hong Kong and the parties hereby submit to
         the non-exclusive jurisdiction of the courts of Hong Kong.

IN WITNESS whereof this Agreement has been duly executed the 1st day of October,
2000.


Signed by

  For and on behalf of
  LJ INTERNATIONAL INC.

  /s/ [ILLEGIBLE]
  -----------------------
  Authorized Signature(s)
                                                      /s/ YIH YU CHUAN
-------------------------                             ----------------
LJ International Inc.                                 YIH Yu Chuan



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