HONG KONG - Because of "excessive liquidity", or too much cash in circulation
and in people's hands, not only stocks and housing but some unusual commodities
can easily become items for speculation in today's China.
Pu'er tea, a fully fermented variety made from sun-dried leaves, has taken a
roller-coaster ride since the beginning of this year.
Pu'er tea is reputed to help people lose weight. Some people believe it can
even prevent and cure cancer.
Many kinds of Chinese tea are best for consumption when they are fresh. Pu'er
tea is different. The longer is it properly stored, the better its quality and
taste (and supposedly its curative properties). Hence the price of older Pu'er
is higher than the fresh ones. Such features make Pu'er a potential item for
The popularity in Pu'er tea has been on the rise in China since 2004, and the
prices grew steadily until last year, with annual increases of 30%.
"Since the beginning of this year, the price of Pu'er has soared, reaching its
peak in May at 20 times higher than last year's price. In terms of returns,
Pu'er is a better investment than stocks or gold, isn't it?" a tea collector in
"In the first four months of this year, the price of Pu'er rose three- to
fourfold. That included fresh Pu'er that was marketed only last October; its
price grew by 80%, to 1,600 yuan per kilogram from 900 yuan," the man said. "So
although the prices of the Pu'er tea dropped suddenly early this month, many
still believe it's only a matter of time before interest in the tea becomes
Wu Xirui, secretary general of the Chinese Tea Circulation Association, said
the soaring prices of Pu'er tea, with a focus on such brands as Dayi, Haihe and
Xiaguan, are a result of rampant speculation.
"The main speculators are dealers from Guangzhou and Beijing. Neither are tea
production areas but they have large tea wholesale markets," he said.
Huang Jianzhang, secretary general of the tea culture research committee of the
Guangdong Culture Study Group, said the average price of Pu'er soared to 800
yuan (US$105) per kilogram now from 8 yuan in 2004, as tea producers and
merchants have bought up large stocks and are hoarding them, giving a false
impression of a shortage to push up the prices.
"Some speculators inflate prices by placing dummy bids and organizing
promotional events like the selection of a 'tea king' to bang the drum for the
potential high value of Pu'er tea. Immediately after real buyers arrive, the
sellers will sell out," he said. "Just like the market manipulators on the
stock market, tea speculators 'stir-fry' the tea by buying and selling it in a
very short period."
Industry experts also attributed the skyrocketing price to excessive liquidity,
one of the key factors that have supported a bull run in China's stock and
When people have too much money with too few few investment channels and are
feeling the pressure of rising living costs, people hope to make quick profits
by speculating on Pu'er.
Meanwhile, the skyrocketing price has caused people chasing short-term profits
to produce more and more Pu'er, most of which is of low quality.
In Yunnan province, the major producer of Pu'er tea, more than 3,000
enterprises are producing the tea, but only 59 have quality safety certificates
issued by the government. Some small individually owned enterprises producing
low-quality tea sell fake brands.
The Pu'er craze is cause for concern in the tea industry. Wang Qing, vice
chairman of the Chinese Tea Circulation Association, said a bubble has formed
in the Pu'er market. The tea industry will formulate a code of self-discipline
for the industry to guide the market by the end of this month, he said.
Meanwhile, the soaring prices benefit the tea industrial chain, in which
farmers can make a gross profit of 20%, tea factories can make 15% and dealers
100-200%, said Xi Zixiang, vice chairman of International Pu'er Tea
But he said tea shops might be the biggest potential victims of the rampant
"Tea shops are like small investors who usually face the biggest investment
risks in the speculative boom since their customers are tea drinkers, most of
whom are price-sensitive, and there are a variety of choices for them to
choose," he said.
What goes up must come down, and this truism applies to tea. The Pu'er market
saw its price drop 10-50% this month.
A shop owner named Gao on Boyuan Road in Guangzhou complained that after her
shop bought a carton of Pu'er tea for 3,000 yuan last month, its price dropped
by several hundred yuan in slightly more than 30 days.
Among the victims was a middle-aged man surnamed Zhang, who spent 400,000 yuan
on Pu'er tea early last month. "The price went up a bit after a brief fall in
mid-May. Then the prices kept going down. Now the stock is worth only 288,000
yuan," he said.
"Never, ever believe any of the so-called insiders. One has to equip himself
with knowledge about the tea before making an investment. Otherwise, someone
like me is forced to be a collector," he said.
In this tea-market mini-crash, the hardest-hit area is Guangzhou, where
speculation on Pu'er tea outstripped stocks and property in the past four
A senior manager surnamed Chen at a Guangzhou tea-trading company said there is
a price but no buyers in the Pu'er tea market now.
"The crash was caused by tea shops that began buying up large stocks estimated
to reach more than 100,000 tonnes and hoarding them. That put part of them out
in the market due to cash-flow problems," she said.
"Besides, the stock market has recouped the losses during the sharp correction
starting late May after the central government tripled the tax on shares
transactions. Thus liquidity is flowing back into the stock market, so the
price of Pu'er started to fall," she said.
Others said some dealers who have faced the increasing costs put their stocks
back on the market to protest the unreasonable price rise.
Olivia Chung is a senior Asia Times Online reporter.