Known as 'the emperor's tea,' the premium Pu-erh tea, which once commanded prices in the hundreds of millions of won, is crashing in the wake of China's economic downturn. With the real estate and stock markets frozen, middle-class investors in China, who had turned to 'all-in (investing with one's soul) tea tech,' have lost their last bastion. Experts analyze that the collapse of the Pu-erh tea myth, once referred to as 'drinking antiques,' is a symbolic event revealing deeper malaise that has spread across the Chinese economy.
According to the South China Morning Post (SCMP) on the 24th, the price of a unit (approximately 15 kg) of the premium Pu-erh tea series 'Xuan Yuan' produced by the brand Dayi has plummeted to 380,000 yuan (about 71 million won) as of June this year. Compared to its peak price of 1.88 million yuan (about 350 million won) in 2021, it has evaporated almost 80% in three years.
Pu-erh tea is a fermented tea primarily produced in the Yunnan province of southern China. The value of this tea increases as it ages, similar to wine. Ordinary green tea is pan-fired to completely destroy the enzymes. In contrast, Pu-erh tea is processed while the enzymes and microorganisms are still alive. These microorganisms slowly decompose the components within the tea leaves, resulting in a maturation effect akin to wine. Freshly made Pu-erh tea, known as 'sheng cha,' has a grassy and bitter taste, but over decades of natural aging, this harshness transforms into a soft, deep sweetness. Well-aged Pu-erh tea, known as 'shu cha,' has a silky texture in the mouth. Chinese tea connoisseurs evaluate that well-aged Pu-erh tea emits complex aromas reminiscent of earth, dried fruit, leather, and old wood.
'The taste crafted by time' made Pu-erh tea an object of speculation beyond mere tea. Since mid-2010, as signs of stagnation began to appear in the Chinese real estate market, Chinese middle-class investors shifted their focus to alternative investment markets, considering rare teas, luxury watches, and traditional herbs as 'secure real asset values.' At the peak of speculation, Pu-erh tea prices surpassed the gold price per same weight. For example, in 2013, seven pieces (about 2 kg) of Pu-erh tea produced in the early 20th century under the brand Fuyuanchang sold for 10.35 million yuan (about 1.9 million won). At that time, the market price for 2 kg of gold was about 110 million won. In 2022, a piece of Pu-erh tea from the 1950s sold for $71,600 (about 9.9 million won) at a Sotheby's auction in Hong Kong. Liam Gwee, business manager at Poly Auction, noted, 'The Pu-erh tea market transformed into a full-fledged speculative arena in the 2010s,' adding, 'especially the prices of vintage teas with high scarcity inflated more than tenfold in just over a decade.'
Premium Pu-erh tea was suitable for showcasing ostentatious consumption among the Communist Party and its power brokers. Desmond Shum, a former insider of the Chinese Communist Party, stated in his book 'Red Roulette' that 'since the reforms and opening up, senior Communist Party officials and their families have maintained their wealth and power through increased Maotai liquor and luxury gifts,' adding that 'Pu-erh tea was also used as a key tool in this culture of 'guanxi' (relationships).'
However, since late 2023, the tide has changed. The Chinese Communist Party has urged its officials to 'get used to tightening their belts,' demanding strict frugality and transparency. Premier Li Qiang stated in his work report at the National People's Congress last March that 'we will eradicate ostentatious consumption and speculative culture and promote healthy consumption.' The Financial Times (FT) reported that 'the Chinese leadership is seriously concerned about the potential for asset bubbles to lead to social unrest.'
Once considered a golden goose, Pu-erh tea has now become a symbol of bankruptcy and liability intertwined with the crises sweeping across the Chinese economy. According to beverage media Stir, the influx of speculative capital seeking aged tea has dried up in the Guangzhou Fangcun Tea Market, where over 80% of Pu-erh tea transactions take place. Unlike the securities market, the government does not impose stringent regulations on Pu-erh tea markets like Fangcun. This creates a nature of 'over-the-counter market' where products exchange hands at prices higher than gold. Naturally, when participant trust collapses, the structural vulnerability leads to a breakdown of price support. Furthermore, counterfeit tea packaged in unique Chinese wrappers and fake tea that misuses the names of famous production areas have fueled market price distrust. Experts analyzed that such vulnerabilities ultimately exploded during this period of economic slowdown.
This situation has dealt a severe blow, especially to middle-class investors in China who joined the speculative frenzy by going all-in. According to SCMP, Chinese investors, including civil servants, the wealthy, and celebrities, borrowed money on vague expectations that prices would continue to rise to purchase Pu-erh tea. SCMP reports that currently, 70% of participants in the Pu-erh tea market are investors looking to profit from price fluctuations rather than consuming the tea themselves.
As the Pu-erh tea craze cools at an unprecedented pace, some individuals are not only incurring principal losses but also abandoning their rights to the tea by failing to pay storage fees for the tea stored in warehouses. Local Chinese social media has reported cases such as 'I couldn't repay the loans and closed my store' and 'some tea merchants have gone missing after cutting off contact.' The tea that has been abandoned in this way is flooding the market at prices less than one-third of the market value, triggering additional price declines.
Overseas media have assessed that 'the myth of asset appreciation among China's middle class is collapsing following real estate and now in alternative asset markets.' The speculative formula that 'what you bury will rise' is no longer valid in the era of economic slowdown in China, whether it be real estate, stocks, or tea leaves. Farmers in Yunnan are now planting coffee trees instead of tea trees. The government of Pu'er City has decided to turn 'coffee tourism' into a new growth engine instead of the old reputation of being 'the capital of tea.'
Simon Zhao, vice president of Beijing Normal University, told SCMP that 'most Chinese now expect a long-term economic slowdown, and tea, wine, or art collections are far from essential goods,' adding, 'the faith in rising prices has been severed.'