International Law

Tulips, Tea or Housing?

Image by Getty Images via Daylife

Andrew Jacob, writing in the New York Times, has an interesting story about a commodity bubble in tea.

"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."

Part of the problem, as Jacob, points out is that "the rise and fall of Pu'er partly reflects the lack of investment opportunities and government oversight in rural Yunnan, as well as the abundance of cash among connoisseurs in the big cities." 

Jacob doesn't describe how the tea traders sold their crop, what type of auction, and on what credit terms.

Likely, new cash was temporarily generated with the introduction of promissory notes -now worthless. And what would a China bubble be without the requisite counterfeit or fake angle: "In the final free-for-all months, some producers shipped their tea to Yunnan from other provinces, labeled it Pu'er, and then enjoyed huge markups."

Full post as published by Misleading Advertising Law on January 20, 2009 (boomark / email).