Chinese new investment strategy - Pu-erh tea collection

There has been a recent surge of Pu-erh tea prices in China, 36%-150% over the last 12 months. Pu-erh tea is a tea class of its own, similar to premium wine in many aspects, it value increases with age. Its unique post –fermentation nature enhances its aroma and texture with time. The market value of aged Pu-erh tea generally increase by 10%-20% every year depending on the tea variety and original quality.

The following reasons are believed to have contributed to the recent surge of Pu-erh tea market prices:

1. The inflation in China is high, especially in foods.
2. The basic labour cost in the Yun-Nan Province has gone up significantly – reported to have doubled since last year. Tea making is a labour intensive process, from leaves picking to the final processing.
3. Due to the radiation concerns about Japanese tea products after last year tsunami, many tea retailers have switched to products such as Pu-erh tea. Most of Pu-erh teas are high altitude forest wild gown with low risk of industrial pollution.
4. Financial value: some investors use Pu-erh collection as investments. Many have tried share market and property investments during the last a couple decades. Property market in China now is considered to be overvalued and share market has been unstable. Pu-erh tea value increase is considered to be relatively steady.
5. Personal value: Pu-erh tea is also believed to have many potent health benefits including reducing cholesterol and weight, and assist digestion.
6. Pu-erh tea is still considered to be relatively cheap compared to other premium Chinse teas. There is therefore a bit of catching up happening.

In summary, the current demand of Pu-erh tea is high and the tea prices in China are largely driven by the balance of demand and supply. Similar to share market, we cannot predict at this point where the direction the Pu-erh tea price is pointing at. It is however the tea producer’s believe that it is unlikely to go down.