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Reading Tea Leaves : A saga of boom and bust in Mainland China

January 22, 2009

Bubbles can be misleading. Especially in lands, where speculation and bubbles are not seen before. Especially in countries where free economy and freedom is yet to win popular sympathies. Especially countries where trading sophistication is looked down upon. Well, you have the set: China and India.

While India, reels under global heat, China is almost tottering. Remember Thailand after Asian Financial Crisis? You got your own version of it, now.

There is a county in mainland China, called Menghai. Over the last decade, as the nation transitioned from optimism to madness to wildness, Menghai had its own taste of a bubble. Pu’er Tea which is much adored, consumed and finally purchased underwent an appreciation of over 10x over the last 10 years.

Menghai Tea Bubble

Menghai Tea Bubble led many traders onto the path of wealth destruction

A pleasantly aromatic drink, much encouraged by the nouveaux rich for what they find Pu’er tea as a distinctively different way to exhibit their ‘class’, Pu’er’s price bootstrapped even the local Menghai economy. Farmers bought farmlands, traders bought wives and locals bought Pu’er, making it sure, that it is indeed a bubble.

{I am strangely reminded of Tulip Crash of 17th century.}

A popular form of buying was the black brick of Pu’er tea, which even replaced traditional savings bank as an investment choice. And what else, Pu’er appreciates even more in value with time. Now its time for the good dream to end. And bad to start. Almost 3000 tea manufactures have pulled down their shutters in the last one year.

Farmers went bankrupt, traders went broke and Pu’er will perhaps go down into history as a modern day version of tulip speculation of Holland.

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Related links: Menghai Tea Factory

Original story from NYT: A county in China sees its fortunes…

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