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China News Service, August 15th, Title: What is the tea content of “financial tea”?

Author: Liu Chunsheng, Associate Professor of Central University of Finance and Economics

After the sudden collapse of Changshi Tea at the end of 2023, another tea brand Pancha "hype plate" has recently encountered difficulties in repayment. Some industry insiders estimate that this may be the largest "financial tea" incident involving the amount of money in the Guangzhou Fangcun tea market so far. Tea is an ordinary consumer product, why is it repeatedly implicated in "finance"?

The so-called financial tea refers to a way of investing by hoarding certain brands or batches of tea, taking advantage of their scarcity and potential appreciation value. Similar to wine investment, some investors buy wine not for immediate consumption, but to wait for the price of this brand or batch of wine to rise before selling it for profit. Using tea as an "investment" does not necessarily mean a "scam", but in the actual operation process, it faces many risks.

On the one hand, tea is not a very standardized commodity. Its value is related to many factors such as production volume, origin, market demand, and preservation condition. There is a clear information asymmetry between ordinary consumers and tea merchants, and it is difficult for consumers to fully obtain tea-related information to judge its true value. Taking advantage of this opacity, some "financial tea" dealers will grandly launch new tea brands, advocating their scarcity and market prospects, or vigorously promote a certain tea as having high collection and investment value. By creating momentum and hoarding limited quantities of tea and releasing them into the market, they continue to create a phenomenon of tea price increases and attract investors to make additional investments.

On the other hand, tea investment has obvious liquidity risks. Compared with financial products such as stocks or physical commodities with strong market demand, tea trading is not convenient enough and has poor liquidity. Some "financial tea" dealers will set up platforms to organize customers to "buy" through dealers. But in fact, some dealers do not deliver physical tea to consumers when selling it, but only promise to repurchase it in the form of principal plus interest after a certain period of time. Consumers do not see tea during the tea transaction process. In other words, the business model of this type of "financial tea" and "financial tea" has deviated from the essence of commodity trading and has evolved from normal sales behavior to an investment and financial behavior that pursues high returns.

There are several special reasons why tea has become a target of speculation. First, when there are relatively few investment channels with good returns, investors may focus on some niche products, such as sneakers and star cards, which have become "investment products" because of their scarcity. Second, China itself has a profound tea culture tradition, and real high-end tea also has certain functions of collection and gifting to relatives and friends. However, it is precisely because the cultural value of tea is difficult to measure with price that it is more likely to be exaggerated and advocated. Third, the transparency of the tea market is relatively low, tea brands are scattered, and the price formation mechanism is relatively complex. Turning tea into a "financial product" in the form of financial management and other forms has concealed the evaluation of the commodity value of tea, making tea investment deviate from the essence of tea and become a form of "financial investment."

In fact, the financial attributes of ordinary commodities cannot be denied in general. The key lies in whether the financialization of such commodities meets the actual needs of consumers. For example, the development of futures for some agricultural products is a means to better serve supply and demand with financial attributes. Moreover, it depends on whether the financial product design of such commodities contains effective risk management clauses and measures to protect investors from unforeseen risks. The description of products and services should be clearer to ensure that consumers can understand the basic situation of the products and the expected returns of the investment.

Recently, some regions have issued documents to warn of the risks of "financial tea" to safeguard the legitimate rights and interests of consumers and maintain the stability of the tea market price order. The author believes that in order to prevent the risks brought about by the financialization of ordinary commodities, it is necessary not only to strengthen supervision, but also to increase market transparency and reduce information asymmetry through means such as public information. At the same time, ensure that the contract complies with the requirements of laws and regulations to avoid illegal fundraising through financial means and other illegal and irregular behaviors. In addition, efforts should be made to educate investors, popularize financial knowledge, especially to warn of the risks of financial investment and enhance the public's risk awareness. (China News Service APP)

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Editor-in-charge: Zhang Zhihan