The Tea Bubble

Posted by: Michael Mandel on January 19

Just a short break in topic. I’m a big tea drinker. I drink 3 or 4 cups a day, some from bags and some brewed (including some strong varieties like Genghis Khan tea, which is so aromatic that it can jolt you awake from across the room).

So I was very interested in a recent NYT article called “A County in China Sees Its Fortunes in Tea Leaves Until a Bubble Bursts:”


Over the past decade, as the nation went wild for the region’s brand of tea, known as Pu’er, farmers bought minivans, manufacturers became millionaires and Chinese citizens plowed their savings into black bricks of compacted Pu’er.

But that was before the collapse of the tea market turned thousands of farmers and dealers into paupers and provided the nation with a very pungent lesson about gullibility, greed and the perils of the speculative bubble. “Most of us are ruined,” said Fu Wei, 43, one of the few tea traders to survive the implosion of the Pu’er market. “A lot of people behaved like idiots.”

A pleasantly aromatic beverage that promoters claim reduces cholesterol and cures hangovers, Pu’er became the darling of the sipping classes in recent years as this nation’s nouveaux riches embraced a distinctly Chinese way to display their wealth, and invest their savings. From 1999 to 2007, the price of Pu’er, a fermented brew invented by Tang Dynasty traders, increased tenfold, to a high of $150 a pound for the finest aged Pu’er, before tumbling far below its preboom levels.

For tens of thousands of wholesalers, farmers and other Chinese citizens who poured their money into compressed disks of tea leaves, the crash of the Pu’er market has been nothing short of disastrous. Many investors were led to believe that Pu’er prices could only go up.

“The saying around here was ‘It’s better to save Pu’er than to save money,’ ” said Wang Ruoyu, a longtime dealer in Xishuangbanna, the lush, tea-growing region of Yunnan Province that abuts the Burmese border. “Everyone thought they were going to get rich.”

Alas. I had Pu’er tea for the first time a year ago…it must have been the peak of the bubble, but I didn’t realize it. Luckily that was not one of my investments.

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Reader Comments

Brandon W

January 19, 2009 11:54 AM

I love Lapsang souchong, smokey tea. I've had people walk into the break room and ask me if I smelled something on fire, it's so strong. Deliciously strong.

Joe Cushing

January 20, 2009 08:37 AM

This kind of reminds me of Starbucks. One day, millions of people figured out that coffee wasn't worth $5.00 a cup.

Yichuan

January 21, 2009 03:57 AM

I am also a big tea drinker and even drink a lot in the evening. My nerves seem to have been immune to the stimulus.

Just as many Chinese tea drinkers, I usually have KungFu tea, which pronounces the same as Chinese fighting skill, but actually mean s leisure time. KungFu tea asks for a series of strict steps and special pots & cups.

Pu'er tea is only one of the KungFu tea. There are also more popular kinds in China, which have distinct tastes and are all delicious.

Ajay

January 21, 2009 05:03 PM

I wonder if the recent seeming prevalance of bubbles isn't because new communication technology allows savings to quickly be invested all over the world into antiquated and inefficient financial systems. For example, chinese and global savings were put into the US economy and the dimwit financiers didn't know what to do with it so they just dumped it into housing or the stock market, hence the unreasonable rises in both this decade. Eventually the bubble burst, as always. Of course, the delusion of crowds is as old as man, what's different today is how quickly these bubbles can inflate and burst. Bubbles may simply be savings gluts that are not accompanied by enough concurrent investment opportunities, so the money floods into dumber uses and then feeds on itself as rising prices attract more savings, building bigger and bigger, before finally bursting. The recent housing and commodities bubbles seem to exemplify this. On the one hand, bubbles are simply an opportunity for money to be reallocated from the stupid to those with a brain, somewhat like how Mark Cuban made out like a bandit from the dot.com boom or how those few shorting the recent market have done well. On the other hand, there is great scope to build a more beneficial financial system on the smoking ashes of the current one, where financial types actually invest money backed by their own research, instead of merely speculating as many do today. Hence, most funds mirrored the overall market in how much they fell, not even providing the protection against such a fall that they've claimed in the past. However, this will ultimately depend on the person on the street finding and investing in such funds. As long as most people view stocks or tea bricks as lottery tickets that can magically make them all rich, they deserve whatever losses they take, market darwinism at its best. However, the problem with that is that they may turn to far worse remedies, like socialism, that kill the patient with the supposed cure.

Mike Mandel

January 27, 2009 07:27 PM

I think there's something to that. I've been in favor of 'beneficial' bubbles in the past. Now my question is how to tell the good bubbles from the bad bubbles.

Rosa Manson

July 20, 2009 12:11 PM

Like Pu'er Tea waht is going to happen to the new just certified teas in Burma like Mandalay 'AH YEE TAUNG','SHWE TOKE', 'YEE MON' and Rangoons 'YUZANA' , PIN PYO YWET NUU' will these end up in the hands of the Regime, or will these become global and what will happen to those who have worked so hard to get these teas certified.

Rosa Manson

July 20, 2009 12:11 PM

Like Pu'er Tea waht is going to happen to the new just certified teas in Burma like Mandalay 'AH YEE TAUNG','SHWE TOKE', 'YEE MON' and Rangoons 'YUZANA' , PIN PYO YWET NUU' will these end up in the hands of the Regime, or will these become global and what will happen to those who have worked so hard to get these teas certified.

Rosa Manson

July 20, 2009 12:11 PM

Like Pu'er Tea waht is going to happen to the new just certified teas in Burma like Mandalay 'AH YEE TAUNG','SHWE TOKE', 'YEE MON' and Rangoons 'YUZANA' , PIN PYO YWET NUU' will these end up in the hands of the Regime, or will these become global and what will happen to those who have worked so hard to get these teas certified.

Rosa Manson

July 20, 2009 12:12 PM

Like Pu'er Tea waht is going to happen to the new just certified teas in Burma like Mandalay 'AH YEE TAUNG','SHWE TOKE', 'YEE MON' and Rangoons 'YUZANA' , PIN PYO YWET NUU' will these end up in the hands of the Regime, or will these become global and what will happen to those who have worked so hard to get these teas certified.

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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