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Pu'er tea investment bubble bursts

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Only a year and a half ago, pu'er tea from Yunnan was one of the hottest and most surprising investments in China, with certain types of the typically fermented tea selling for more than their weight in gold.

Today, the pu'er tea market has lost 85 percent of its value in an 18-month downward spiral that surpasses the 70 percent drop in value of the Shanghai stock market over the last 14 months, according to a Reuters report.

Pu'er first gained the attention of Chinese investors in 2003 as urban Chinese experienced growth in disposable income but had few investment opportunities outside of real estate and the young stock markets in Shanghai and Shenzhen. The tea, which only grows in southern Yunnan, grew in value around 30 percent annually, with its value jumping 50 percent in 2006.

Pu'er was once considered a 'tribute tea' fit only for the emperor's court, but as its value rose in recent years, product quality suffered as farms did everything they could to ramp up output. In addition to increased usage of pesticides, some farms cut their higher-grade pu'er with inferior product and others went as far as counterfeiting the tea.

These production issues and a surge of speculatory investors who did not understand pu'er are the main factors which have led to the tea's substantial drop in value.

There is a bright lining to the gray cloud hanging over the pu'er market these days, as many of the speculative investors and producers of inferior pu'er have been weeded out of the market, which analysts say is resulting in a rise in quality of pu'er – at least until the next time investors start throwing their money at the market.

Image: The New York Times

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Silver lining indeed. Now us mere mortals can start stocking up on the good stuff...

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