Chinese Speculators Driving Up the Price of Pu'er

ZHI, July 11, 2008]

FIRST it was property, then the stock exchange. Now, the rare tea Pu-erh is at the center of the latest market bubble in China, and it looks set to burst.

Like fine wine and malt whiskey, fermented Pu'er tea improves with age. While a cake of two-year-old Ye Sheng Gucha tea sells for around $30US, the 13-year-old fetches $200US. With prices rising by as much as 50 per cent per year, Pu'er is perceived as a far better cellaring option than Bordeaux wine.

The fermented tea from south-western Yunnan province is famed for its rich flavor and medicinal qualities of lowering cholesterol and preventing cancer. It is also said to help in losing weight. (I'll tell ya, it certainly cuts my sugar cravings).

"The price changes have been really serious," said Hua Meiling who runs a tea-shop on Shanghai's Taikang road. "People have been talking about it like the stock market." This speculation has also spawned imitations.

Investors in Hong Kong and neighboring Guangdong province first started buying the tea speculatively in 2003, purchasing large stocks to tighten supply. Recently, 500g of a 64-year-old Pu'er tea sold at auction for $120,000US.

According to shop owners, prices for two-year-old Pu'er tea sold in Shanghai increased by about 20 per cent last year. But in Beijing, some varieties of Pu'er have doubled in price over the last two years. And in Guangdong, the price of big brand Pu'er reached a peak in May at 20 times higher than last year's price.

But now interest is coming from abroad. Baffled Shanghai tea sellers report strings of Taiwanese customers buying up their stock of what they call "bargain-priced" Pu'er.

And since Victoria Beckham revealed that drinking Pu'er is one of her "slimming secrets", several UK importers have also got in on the game. One web-based retailer, Eternal Spring, emphasizes the tea's investment potential, offering to buy back any unused tea at a return of 10 per cent a year.

But it has not just been increasing demand that has sent prices rocketing. Last month, supply was knocked after an earthquake measuring 6.4 on the Richter scale caused £125 million damage in the Pu'er region, much of which was to its tea factories. Prices of Pu'er on Beijing's Maliandao Tea Market went up between 30 to 50 per cent on the news.

Most analysts agree that the main reason behind the astronomic rises since 2003 is speculation. "The price of Pu'er tea has risen too far from its actual value as a result of hype from business and investors," Yang Sizhong, a professor at Yunnan University, told the China Daily.

The Shanghai stock index, which has more than tripled in two years, underwent a sharp correction at the end of May after the central government tripled the tax on shares transactions. And apart from a blip after the earthquake, prices of Pu'er tea have since then been dropping.

THE earliest records of Pu'er tea date back to the Tang Dynasty (618-906).

Because it took weeks to transport the tea leaves to be processed, they would begin to ferment in the humidity and release a strong, fragrant aroma. A special technique of tea fermenting developed, and Pu'er was thus created.

The leaves are collected from growers of a broad-leaf tea tree. They go through two types of fermentation, which gives the tea its unique characteristics; a mild but distinctively earthy flavor. Pu'er requires at least ten years to mature and gets better with age. Pu'er teas are much lower in tannins than other varieties.

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