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Jun
2015

Chinese tea, the original luxury drink

tea

Introduction

As the original home of tea, the Chinese love affair with the drink has deep cultural, spiritual and historical significance. From its origins in ancient China until today, consumption of tea has had a reverence associated with luxury. In China today, the purchase, investment and consumption of the highest quality tea involves big money, which as the benchmark of luxury in the country puts it alongside other internationally recognised items such as gold and wine. There is a saying in the Chinese tea industry: ‘if there were to be a worldwide known Chinese luxury brand, it should be a tea brand’.

Tea was actually discovered as a medicine and then became recognised as a contributor to good health, continuing to be regarded in these terms for a very long time until the Song Dynasty, when it became more of a commercial commodity. Today its value is greatly influenced by perception of its worth, rather than its real market value.

The general tea production market

According to Chinese national statistics, in 2012 the total tea output was 1.79 million tons, an increase of 10.3% or 166.6 thousand tons year on year. Of this production, green tea accounts for 70%, being the most popular variant, the remaining output is made up of black, oolong, white and yellow tea.

Exports of tea from China in 2012 were a little over 310,000 tons, with a value of approximately US$1 Billion, making it the second largest in the world. Although exports grew by a new record of 11.11 %, the export value was still relatively low.

Consumption, investment and collect

Tea is both a popular and royal drink. On average the Chinese drink approximately 1Kg of tea per capita per year, about half of that consumed by the world’s biggest tea drinkers, the British. However, the status of some of the teas in China makes them extremely valuable.

The West Lake Longjing tea has been grown in Hangzhou for more than 1,500 years, and is acknowledged as the top tea in China, its royal origins are claimed to be as follows. In 1762, when visiting the West Lake in Hangzhou, Qianlong, the Qing Emperor, who was very fond of Longjing tea, named the eighteen tea bushes on the Shifeng Mountain as ‘Royal Tea’. Since that time, this status has remained with these 18 bushes, whose leaves have become the most expensive tea in China. In 2005, 100 grams of tea from these bushes was auctioned for 145,600 RMB, equivalent to 1.456 million RMB per kilogram.

On 21st March 2012, when the market price of gold was then 336,000 RMB per kilogram, the first West Lake Longjing tea of the year sold at auction to buyers willing to pay 360,000 RMB a kilogram. Authentic West Lake longjing tea is limited and only includes that grown within 168 square kilometres near to the West Lake.The tea from Longjing village is actually much rarer, its annual output only being 10 – 20 kilograms in total.

In addition to tea production, there is also a tea roasting competition held in the region every year, where tea valued at hundreds of thousands of RMB is pan roasted by the tea roasting champion. A further important fact is that, unlike a post-fermented tea like Pu’er or partially fermented tea like Tieguanyin, Green tea cannot be kept for years, several months after pan roasting most of its fragrance will be gone.

The individual tea lover and collector of expensive tea is in fact in the minority. Most of the purchasers of high value, high quality tea are businesses or public sector organisations, who use it to honour special guests, or give as gifts. A high-end tea retailer from Hangzhou is quoted as saying that the gift consumption is the main driver for sky-high prices of West Lake Longjing, which is mainly purchased by universities, government institutions and enterprises.

But this year, consumers for the high priced longjing tea have decreased, and those asking for a fapiao (official receipt) are much fewer than last year. The new central government regulations to reduce corruption, and using public funds for visits, gift giving, and banquets have started to bite. As a result the first West Lake Longjing tea auction and tea roasting competition were cancelled this year. And the first tea of 2013 was sold for 80,000 RMB per kilogram being purchased by 14 tea fans, at a total value of 224,000 RMB.

Speaking to an expert

I am fortunate to be sitting with Mr Zhen in his shop in the back streets of Shanghai, away from the tourists and mass-market commercialism that has taken over China. He is a tea master, expert advisor to others, investor, collector and seller of teas. As we speak, he takes a handful of leaves from a bag and puts them into what looks like a very old tea pot, some minutes later he pours me a cup of Pu’er tea.

It is then at this point that he explained to me that the tea I am sipping consists of leaves of 100’s of different types of tea. The ages of the individual teas all add up to more than 2380 years, the oldest having been picked 120 years ago. This tea was created by the teacher of Mr Zhen to celebrate a Buddhist event and only 10kg was made. At the ceremony for which this tea was created, 200 people tasted it and took a small amount away, Mr Zhen and his teacher own the rest. I am now one of a few hundred people in the world who have ever tasted this particular tea!

So what is the attraction of investing in tea?

Tea is a simple concept in terms of investment according to Mr Zhen, its long term and relatively stable. Profits can be good, depending upon the age and original purchase price paid.

Before 2000, the tea market in China was quite simple, but then new money came in and started buying, and after 2006 the market became ‘odd’ because so many people were buying tea and driving the prices up. In his view, 95% of the investors, buyers and sellers didn’t really know what they were doing they just thought they could make quick money.

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So, who are the real investors in tea, and how can anyone make money from it?

There are no figures available about the number of tea investors, but I think that maybe 1 in 1000 are connoisseurs. He showed me a big pack of tea made up of 7 bricks. Each brick he buys, will have a retail price of twice the distribution price, and will sell the following year at 4 times the original buy price. The quantity of tea available is also restricted, which means estimating future values and the right investment choice is possible.

Often a group invests together with Mr Zhen’s help because the money required to make the initial purchase could be high. Sometime later, he will resell the tea on behalf the group, so that everyone makes a profit.

As examples, a tea from 2005 that sold originally for 2,000 RMB was purchased by a Beijing investor who bought 800 bricks for 10 Million RMB last year. A tea produced in the 1980’s that sold for 800 RMB per brick now sells for 300K to 400K RMB for the same amount. Profit can be good, if you are prepared to wait.

Are there specific teas that are more collectable than others?

Pu’er is probably the most collectable tea, although the huge interest in tea as an investment vehicle has driven up the prices of many other types of tea that used to be relatively cheap.

Is it possible to have a ‘vintage’ tea, like we might in wine?

For tea there is no vintage concept or standard, but like a vintage wine, tea in a brick is usually from the same year. Unlike wine, tea is fibrous and is stored directly in the air, continuing to ferment over time. It is better to allow the tea to benefit from different air temperatures and to some extent air quality changes over time.


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