Some thoughts... LONG

[shah82]

First, a bit of fun with wine! http://www.forbes.com/sites/francescopp ... ipulation/

The Chinese economy is changing. Also, how China feels that it can engage with and trade with the West. There are some ramifications with respect to puerh.

Up to now, there has been a concerted effort at catch up growth. From a dead start since Deng's Southern Tour, through the rationalizations of the state industries during Zemin's time. Then the big cleanup of the banks, and Hu and Wen led some pretty fast moving times, with very high growth that help erased many a bad debt from the '90s. Okay--in 2007 and 2008, the economy became unstable and things crashed.

Puerh was one of many things that attracted uncritical speculation in 2006, 2007, with many people producing lots of worthless tea that was hoarded to be flipped later on. The broader economy in China only slowed just a little bit in 2008 due to China's currency and trade barriers to the rest of the world. While all the momentum from China's huge changes kept going, the leadership decided that this was the time for a huge stimulus package, with infrastructure, disaster recovery, and upgrading outlying areas like Yunnan, Sichuan, Xinjiang, and Tibet.

2008 wasn't much of a year for puerh, as that some people were still recovering from market losses, and other customers (in China) felt burned by bad tea. Moreover, it was a terrible year for tea, with massive Southern snowstorms and cold in the Eastern provinces, and too much rain in Yunnan. So not as much good tea got made. Also, I get the sense that the Olympics overshadowed a lot of things marketing-wise that year. Rising from that low era, though, people thought about what caused the crash, how they might take advantage, and what would give the tea-makers and traders more sustainable advantage. What they came up with was the marketing of localism, of purity, and a sense of membership with elite sensibilities.

People started talking big about mountains. ChenShenHao made their move to monopolize Lao Banzhang. We started hearing about Bingdao and Mahei (well, more often). Not Mengku...Bingdao, where there's been tea since MING ERA! Not Yiwu, but sophisticated, graceful MAHEI. People started figuring what the heck was Hekai or Qianjiazhai. The age of the tree the leaves came from became emphasized. Brands like 12 Gentlemen made a big deal out of their theories of processing. While the Taiwanese have generally been the source of demand for high quality raw sheng, and has had boutique brands, newer Mainland boutique labels blossomed throughout the scene during that time.

Who bought teas like these in 2009, 2010, 2011, 2012? I mean, the usual set of wealthy people drank mature tea, your '70s Cultural Revolution brick, perhaps an early 80's 7542 at latest. Well, the Chinese fiscal stimulus in response to the Grand Financial Crisis shoved huge amounts of cash into the Chinese economy. At the same time, Chinese households were totally starved of easy investment options. Some bought extra apartments. Others bought gold, jade, ivory. Some weirdos bought tea. Lots and lots of tea until their place could hide the stench of MJ being smoked. While those guys bought Dayi by the jian, what did all the guys, who seriously had their grubby fingers embezzling by the truckload, do? Dayi was so plebian! So hard to drink! And you certainly couldn't impress more senior folks with an 88 Qing Bing! Ah! But you can use an 88QB to move money! To pay without using money. To influence the sort of people who might think a fresh and green Yiwu is the bee's knees. Bet the marketing was really determined. China is full of different aesthetics, many of them completely antagonistic. A lot of hard work was done by many people to improve consumer attitudes such that the tea companies could sell in some real quantities, unlike a 70's Green Mark, in all of China.

However, all things change. After 2011, really good tea became much harder for ordinary people to buy. Many people have developed some rudimentary understanding of tea, and puerh is just not a new as it used to be. There are fewer and fewer pricing mistakes in the favor of the buyer, and more of them in favor of the seller. The number of brands have proliferated, and it has become more difficult to get enough people and tea together for sampling and reviewing. So everyone is beginning to develop far more individualized understanding of quality rather than let a magazine tell them that the 2001 Yuanyexiang is a top tea. It would cost too much to get a lot of people to directly compare Diancha, Sanhetang, Yulin, etc products, anyways. Tea media has changed, say, like in the West, blogging has tended to deemphasize "basic quality" of the tea in favor of more metaphorical and existential concerns compared to yesteryear. Or just a lot more about teaware and travels!

Hu retires, and now we have President Xi, who is much more nationalist minded, China-has-arrived sentiments than the outgoing leaders. This could be a rather expected outcome. Xi, and guys like Bo Xilai, were princelings, effectively. Hu and Li Peng and Zemin, all of these guys worked their asses off (and their connections, too) under relatively meritocratic circumstances. They were always primed to seek tools and improve their advantage, and as such, was, give or take, fairly open to the rest of the world and their ideas. All of these guys had their little buddy buddy networks going, and frankly, a lot of it got out of hand, like Zhou Yongkang's control of the internal security apparatus (and his personal abuse of it) as well as the main representative of the Chinese state oil industries that had tended to be just a little too independent for policymaking's sake. Xi, operating with the consent of the party's grandees started an anti-corruption campaign meant to consolidate power back into CCP policymaking apparatus and give less scope for the freelancing similar to Bo Xilai's antics in Sichuan.

Meanwhile, in tea ~2013, more and more people incorporated some sort of puerh drinking as part of their tea habits, and tastes have become more refined. The tuhaos are much more likely to visit Yunnan and get their cut directly, or send a representative--with the result that it has become progressively more difficult to buy truly good tea, even if you have money. Things have been recovering since the late 2011 sovereign debt shock with Draghi's vow "to do what it takes". However, as the anticorruption campaign continued, there has been an ever increasing drag on consumer demand for elite products. The loss of demand isn't really big enough for actual elite puerh, but you start seeing more reasonable prices for many tea groups. Still, the difficulty of *both* buying and selling high end puerh has led to ever more exaggeration of a tea's quality and purity. The ecological changes in Yunnan, plus the greater actual recultivation of ancient groves has had their impacts too. So, roughly from 2013 on, more and more tea brands are moving away from advertising about mountains and tree age and projecting a more sophisticated aesthetic in wrappings, in blends, etc.

Xi's reforms has had some impact on China, however, the stagnancy of the world without imposes on his dream. The nation also is hitting it's Lewis Turning point--where cheap labor from the countryside dries up, and wages are forced up. This means China can't compete on rubber duckies, assembly, or other simple manufacturing anymore. Not only that, the dilatory attitude about reforming local taxation and spending has created a huge pool of not very well understood and not very performing debt. That was largely a consequence of how the 2008 stimulus was funded. Some state money, but lots of local land sales/theft to developers that supposedly went to infrastructure. Some of it good, much of it bad, and plenty of the money simply stolen. Therefore, Xi has to manage to navigate the impacts of tougher exports and local solvency. The broad outline of his plan is to allow more Chinese to seek better returns outside of China--through simple investment, allowing some globalcorp investment in China (very monitored and targeted at crucial needs), creating a development bank that helps Chinese corps get jobs in places like Sri Lanka, Venezuela, Nicaragua, or Pakistan. That means making the Yuan more convertible. Making the yuan more convertible, such that it could be used in the IMF basket inevitably reduces control. Right now, that has mean yuan valuation painfully high for the country's exporters, while the yen and Korean won is cheap cheap cheap (as well as euros). To counter that effect, there is a sentiment that China can rebalance economic growth on growing consumer activity.

What does that mean for puerh? I think that the chief impact will be a decline in speculative interest for puerh. The really good stuff will do what it will, in a separate market dynamic. However, there will be a decline in expectation that average teas will go up in price. There will be fewer people grabbing boxes of tea on the hope of appreciation better than half a percent at the local bank--hey, banks can offer better interest rates these days, even if you don't go with risky trust funds. That means that an ever greater part of the market is going to be for final consumption, just like when you buy a hundred grams of Thunderbolt darjeeling--you're planning on drinking all of it relatively soon. There is a lot of tea out there, though, that was held for appreciation. Much of it not really of much merit other than for absent minded drinking, or otherwise casual consumption. Without the simple assumption of ever increasing prices, what do you think storeowners are going to do? Particularly when so many of them have high rents to pay? I think there is going to be a progressive crash in the prices of mediocre tea, particularly those that are obviously not going to get remarkably better. Where today it might cost a hundred bucks for an '04 or '05 Changtai...I think we will see $30-$50 bucks for them, and a flattening of value niches. A Yibang? 100RMB. A "Mahei"? 100RMB. A "LBZ"? 100RMB. A quantatization, of a sort. Everything of a certain quality flattens together. And the next grade up will have a discrete difference in price. Nobody buys on the name or the story anymore. Just on the qualities. After all, only the rich are honored with the truth (much of the time).

Also, given the changes in geoeconomic alignments (and quiet currency war), I would also not be surprised if it got harder to send many products, such as tea, outside of China, due to trade barriers being put up, quietly, then loudly.

Well, hope you guys found this useful...

[Puerlife]

Lots of food for thought here. Thank you. Do you have a flair for fiction writing? I'd love to see a TV series based on the jianghu of puer and the Chinese counterpart of Walter White, of Breaking Bad fame, whose genius is in faking Dayi better than anyone else.

[TwoDog2]

Interesting thoughts and reflections, a few random thoughts.

First, and most importantly: Make. A. Damn. Blog. Your content is great food for thought. Focus it and put it in one spot.

Second,

Everything of a certain quality flattens together. And the next grade up will have a discrete difference in price. Nobody buys on the name or the story anymore. Just on the qualities.

I couldn't agree more. The tired stories and name brand mountains might still have a certain cachet in the west, but in China it is already a farce. Both stories and names are misused to the point that they are void of all meaning.

Third, the crackdown on corruption and general slow down of the economy will be a huge factor in how the Puer market continues to develop.

I'd love to see a TV series based on the jianghu of puer and the Chinese counterpart of Walter White, of Breaking Bad fame, whose genius is in faking Dayi better than anyone else.

Caking Bad

[shah82]

Man, the instant I get a blog, I'll get writer's block!

[shah82]

Even through the gibberish of google translate, this is such a lovely flame war...

http://teabbs.zjol.com.cn/thread-292730-1-1.html

[javi_sanchez]

Man, the instant I get a blog, I'll get writer's block!

I have this problem with programming. At any different time I am experimenting with some graphics algorithm, game mechanic or architectural pattern. On top of that I almost always try to implement these things in a web page so I can easily email it to my friends and get feedback. My friends all tell me to make a programming blog. Twice already I've bought a domain name and started and get caught up in writing, rewriting, and polishing and nothing ever gets done. Not only do I not post anything but I don't do any more programming experimenting.

Perhaps a site like medium.com that lets you write unencumbered?

[Puerlife]

Scrivener writing software is really a good program for that Caking Bad script. Caking Bad I've been using the free trial for a project and I love it.

[the_winding_path]

Shah82,

fascinating assessment of the goings on with tea and China. thanks for the writeup!

[AT333]

Man shah82 that is a great and wonderful thoughts. Hope you consider a blog. Thanks for sharing.

[Tead Off]

Interesting thoughts and reflections, a few random thoughts.

First, and most importantly: Make. A. Damn. Blog. Your content is great food for thought. Focus it and put it in one spot.

Second,

Everything of a certain quality flattens together. And the next grade up will have a discrete difference in price. Nobody buys on the name or the story anymore. Just on the qualities.

I couldn't agree more. The tired stories and name brand mountains might still have a certain cachet in the west, but in China it is already a farce. Both stories and names are misused to the point that they are void of all meaning.

Third, the crackdown on corruption and general slow down of the economy will be a huge factor in how the Puer market continues to develop.

I'd love to see a TV series based on the jianghu of puer and the Chinese counterpart of Walter White, of Breaking Bad fame, whose genius is in faking Dayi better than anyone else.

Caking Bad

That's cute!

The herd mentality of speculation always ends badly and really has nothing to do with the selection and enjoyment of tea. If this segment of the market takes a turn for the worse, which like all things, will reverse in due time, it will harken back to the times where you developed a relationship with a tea house/vendor, online or otherwise, and trusted their selection of teas to add to your cache. It's really not much different than it is right now. Just subtract the motivation of investment and simply begin to enjoy your tea, once again. It was/is/and always will be, a simple affair. Buy from someone who knows more than you do, has access to teas that you like, and sit back and enjoy them.

[Cwyn]

And yet the Dayi buying still continues.

[kyarazen]

And yet the Dayi buying still continues.

inevitable. so does all the xiaguan buying.

it is still regarded as liquidity and currency. easy to trade in large volumes. many other brands or artisanal stuff don't enjoy this liquid value, not enough volume too.

in china and many places, there is a greater audience for mediocre teas than top end teas. easier to move a tea that is $20 for 600g, vs $60 for 200g...~

[Tead Off]

And yet the Dayi buying still continues.

So? I'm not trying to stop it.

[Puerlife]

it is still regarded as liquidity and currency. easy to trade in large volumes.

Setting aside the privileged few who have a pallet of 88 qing bing, people for whom even that amount wouldn't move the needle for them financially, Tead Off has already pointed out what is going on here—speculation. If a mainland Chinese person wants liquidity, currency, fungibility, portability, divisibility, insurance, and something they don’t need a climate controlled warehouse for, they buy gold, which the government has been encouraging. It doesn’t rust, get moldy, dry out, have a difficult period, takes up very little space, and is successfully faked far less often. No Chinese would undertake all that storage cost and risk just because they believe they will be able to sell it whenever they want. They do it because they see dancing yuan notes in their dreams. They want to get stinking rich. So the (imaginary) people who tell you they’re buying boxes and boxes of Dayi for liquidity and currency…? Haha, you really believe that?

At best, you could say (as Shah so eloquently put) that it’s a relatively liquid speculation…until it’s not.

[kyarazen]

o' come on, i meant liquidity and currency only in the Pu-erh tea market, no where else. because only these pu drinkers would be willing to pay good money for aged pu-erh tea, and non tea drinkers wouldnt give two hoots. but there had been some move in mainland several years ago to turn pu-erh into some form of monetary investment. now in taiwan there are mention on the shaky future of "Malaysian stored pu-erh", as there are large stockists in kuming, guangzhou and many other parts of china with far larger volumes. Deng sihai is now well known for trying to speak up for the superiority of malaysian stored pu-erh due to its all round summer and humid climate. what for how long the aged pu-erh trend will continue, that is up to the speculators, and it seems that a new generation of sheng chuggers had been bred.

economically speaking, gold is great. antiques, cultural stuff are only highly valued in times of peace. when times are difficult, gold still can be traded for food. a brick of pu-erh then? well.. one might have good tea to drink but no food to eat..

that said, at this current point of time, it is still easier to resell several crates and boxes of Dayi, Xiaguan etc etc, not too difficult to sell tongs of more expensive teas (aged), yp hao, xz hao, but if one were to pick up artisanal brands like jin qiao.. and other even smaller artisans.. it will be harder to move.

it is still regarded as liquidity and currency. easy to trade in large volumes.

Setting aside the privileged few who have a pallet of 88 qing bing, people for whom even that amount wouldn't move the needle for them financially, Tead Off has already pointed out what is going on here—speculation. If a mainland Chinese person wants liquidity, currency, fungibility, portability, divisibility, insurance, and something they don’t need a climate controlled warehouse for, they buy gold, which the government has been encouraging. It doesn’t rust, get moldy, dry out, have a difficult period, takes up very little space, and is successfully faked far less often. No Chinese would undertake all that storage cost and risk just because they believe they will be able to sell it whenever they want. They do it because they see dancing yuan notes in their dreams. They want to get stinking rich. So the (imaginary) people who tell you they’re buying boxes and boxes of Dayi for liquidity and currency…? Haha, you really believe that?

At best, you could say (as Shah so eloquently put) that it’s a relatively liquid speculation…until it’s not.