China's pu'er tea market attracting investors
In the past few years as increasing numbers of Chinese nationwide have been trying their luck 'stir-frying' mainland stocks, an increasing number of mainlanders have been testing their investment acumen on a rather unlikely item - tea.
One of the hottest and more surprising investment trends for Chinese in recent years has been the emergence of pu'er tea as an investment item. There has been an explosion in the pu'er tea market with prices seeing yearly increases of 30% - including a 50% jump last year - and some rare pu'ers selling recently at prices more than their weight in gold.
One of the more unique teas found in China, some types of pu'er are fermented and actually improve with age. The tea began to attract the attention of Chinese investors in 2003 as an alternative to investing in more orthodox options such as property or the country's emerging stock markets.
The rise of disposable incomes in recent years has resulted in mainland Chinese possessing larger amounts of capital and a growing eagerness to invest. But the main options for investing are limited to domestic markets which consist mainly of the real estate and stock markets, said Jeff Crosby, Media Director for the Dayi Tea Company, owners of the Menghai Tea Factory in Xishuangbanna.
"Chinese can't take their cash out to the international markets," Crosby said, "so it's natural that there would be a lot of excess liquidity flowing towards a high-performing sector like pu'er."
This rush to invest in pu'er tea has caused substantial fluctuations in tea prices due to the large amount of available capital and demand for the tea, and limited puer production capacity. Much of this fluctuation in price has been seen in older, rare puer teas while the majority of the puer market has maintained fairly stable prices throughout this period.
"The consumer base has expanded markedly over the past few years, leading to rocketing prices for older teas," Crosby said.
Zheng Huanshan, manager of the Jinhui Chaye tea shop in Kunming said that the number of buyers in the pu'er industry has increased several times over in the past few years, with tea production staying fairly consistent - thus pushing prices upward at a dizzying rate.
Although the past few years have been a boom time for pu'er tea, the lucrative investment market has cooled off slightly in recent months. Recently there has been a slight downturn in pu'er prices, most likely due to a combination of factors. According to Zheng, one reason for this may simply be that summer pu'er is always less expensive than spring pu'er due to quality differences between the two.
Another aspect of the pu'er market that may be leading to recent market corrections (if one chooses to view them as such) is that there is a lack of regulation and official standards under which tea producers and sellers must operate. The result is that a portion of the Pu'er tea introduced into the market has been of lower quality than before - or even counterfeit - and a decline in investor confidence has affected prices.
In the long term, Dayi's Crosby expects that pu'er tea will most likely continue to grow in value, with short-term fluctuations scaring off novice investors and speculators - this may ultimately lead to a more stable and mature market for pu'er, with fewer fluctuations and disturbances in the market price.
Crosby said the recurrence of price fluctuations in the pu'er market "will be a big weeding-out process, busting a lot of speculative players and leaving behind a multi-tier market with a few high-end brands commanding high prices and with other labels providing moderately priced stuff for the general consumer."
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This article was posted by Peter and published July 19, 2007
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