Thousands ruined as Chinese tea bubble bursts

KUNMING, Jan 18 – Saudi Arabia has its oil. South Africa has its diamonds. And here in China’s temperate south-west, prosperity has come from the scrubby green tea trees that blanket the mountains of fabled Menghai County.

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 ploughed 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 Mr 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 US$150 (S$220) a pound for the finest aged pu’er, before tumbling far below its pre-boom 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 long-time dealer in Xishuangbanna, the lush, tea-growing region of Yunnan province that abuts the Myanmar border.

“Everyone thought they were going to get rich.”

Fermented tea was hardly the only caffeinated investment frenzy that swept China during its boom years.

The urban middle class speculated mainly in stock and real estate, pushing prices to stratospheric levels before exports slumped, growth slowed and hundreds of billions of dollars in paper profits disappeared over the past year.

In the mountainous pu’er belt of Yunnan, a cabal of manipulative buyers cornered the tea market and drove prices to record levels, giving some farmers and county traders a taste of the country’s bubble - and its bitter aftermath.

At least a third of the 3,000 tea manufacturers and merchants have called it quits in recent months. Farmers have begun replacing newly planted tea trees with more nourishing - and now, more lucrative - staples like corn and rice.

Wu Xiduan, secretary-general of the China Tea Marketing Association, said many naive investors had been taken in by the frenzied atmosphere, largely whipped up by out-of-town wholesalers who promoted pu’er as drinkable gold and then bought up as much as they could, sometimes paying up to 30 per cent more than in previous harvests.

He said that as farmers planted more tea, production doubled, from 2006 to 2007, to 100,000 tonnes.

In the final free-for-all months, some producers shipped their tea to Yunnan from other provinces, labelled it pu’er, and then enjoyed huge mark-ups.

When values hit absurd levels last spring, the buyers unloaded their stocks and disappeared. – NYT