More tea in China

Age cannot wither it

The saying around here was it’s better to save Pu’er than to save money,” comments Wang Ruoyu, a long-time dealer of Pu’er tea in Yunnan Province. Like most speculators, “everyone thought they were going to get rich.”

Well, that was before the market collapsed, destroying the hopes of thousands of farmers and dealers. Likened to comparable frenzies in the property and stock markets, Pu’er tea provides a sobering tale of the perils of speculation.

Pu’er, which is said to reduce cholesterol and help weight loss, saw its price increased tenfold over the last decade. A pound of the finest aged Pu’er, according to the New York Times, could fetch up to $150.

Unlike other types of tea, which should be consumed shortly after harvest, Pu’er can be aged for several years, and its aroma and taste improves with time.

Spotting a savvy investment, farmers and wholesalers quickly poured their money into black bricks of compacted Pu’er. Production doubled to 100,000 tonnes between 2006 to 2007.

“Only Pu’er tea will appreciate in value with time and it’s a good investment. From my point of view, it’s a commodity more valuable than gold because its value will never go down,” says Chan Kwok Yee, a tea expert with 16 years of experience in trading and investment.

Well, Chan was wrong. The going rate today for Pu’er has dropped to less than a tenth of its peak. Statistics from the local government show that Yunnan’s sales of tea products in 2008 were Rmb10.5 billion ($1.53 billion), only half of 2007’s level. Industry experts believe that the decline of Pu’er tea ouput affected the total sales of Yunnan’s tea products greatly.

So what went wrong? After pushing prices to record levels, speculators quickly dropped out of the market in the latter half of 2007, leading to a supply glut and a big drop in prices.

Yunnan Province, which is reckoned to produce the best quality Pu’er tea, was hit the hardest. The province has seen at least a third of its 3,000 tea manufacturers and merchants call it quits since the end of last year. Farmers have begun replacing recently planted tea trees with more lucrative staples like corn and rice.

“With the adjustment of the market last year, the price has returned to a more reasonable level, but still lower than last year,” says Kong Chuizhu, deputy governor of Yunnan Province. “Overall, from the industry’s point of view, I consider that a normal adjustment in prices.”

Some remain unfazed by the slump in Pu’er prices. Chen, a trader of Pu’er tea, reckons that prices will eventually rebound. Just like good wines are supposed to be worth the wait, “the best thing about Pu’er,” says Chen, “is that the longer you keep it, the more valuable it gets.”

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.