China’s Administration for Market Regulation recently published anti-monopoly guidelines for the pharmaceutical sector, including teas and herbs used in Chinese Traditional Medicine (TCM).
According to Reuters, the guidelines suggest closer scrutiny of unregulated tea and herbal ingredient markets.
The Kangmei Chinese Medicinal Material Index, a measure of investment activity in tea and herbs, hit a record high in July as some medicinal leaves, roots, and bark tripled in price. The spike is attributed to speculators and prompted official warnings for speculators to stop pumping up the market and to the public “not to get consumed by the fever of fast-rising prices.”
Reuters writes, “The speculative frenzy comes at a time when the economy is struggling to grow as it grapples with deflationary pressures and weak consumer demand.”
Trading has been brisk in the premium Pu'er sector of the tea market. Experts say Pu’er, typically sold in 137g “cakes,” improves in quality as it ages. Pu’er cakes are traded and collected much like vintage wine. In 2013, seven cakes of FuYuanChang Blue Ticket Round Tea from the early 20th century sold for 10.35 million yuan (about $1.5 million US)
TCM medicinals Goldthread, white peony root, and tree peony bark have tripled in price during the past two years, driving the Kangmei index up by 50%.
Dealers say tight supplies due to floods are partly to blame, “but a bigger factor is manipulation by capital.”
Xilong Zhang, a business writer at Jiemian Global.com, explains that the tea futures market is and always has been highly unregulated. No one except the participants oversees it. “If your word turns out not to be your bond, then you can find yourself in all kinds of trouble,” he writes.
Amateur Pu’er speculators lost millions trading tea in 2006-07, a period of high savings rates and limited domestic and overseas investment assets.
The Bozhou Traditional Chinese Medicinal Material Association, an industry group, advised members to warn speculators “not to pump up prices.”
In early December, a much-hyped Pu’er that retailers rushed to obtain for 50,000 yuan dropped to 2,000 yuan overnight when authoritative critics published terrible reviews.
In January, Chinese state broadcaster CCTV aired the story, reporting prices of Chang Shi Tea, a Pu’er brand from tea trading hub Guangzhou, shot up to 50,000 yuan ($7,023) per 2.5 kg brick before collapsing, causing hundreds of thousands in losses.“Investors should be on high alert and get rid of the whim to get rich overnight,” according to Liwan District officials. Liwan is home to Guangzhou’s wholesale Fangcun tea market. More than 80% of all pu’er tea goes through Fangcun.