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Source: Economic Daily

Recently, the "financial tea" explosion incident reappeared. According to reports, a certain tea brand "hype plate" has difficulty in repayment, and is currently negotiating a repayment plan with dealers, customers, etc. The last "financial tea" explosion incident occurred at the end of 2023, and the two similar incidents were less than a year apart.

The so-called "financial tea" is a general term for speculation based on specific tea products. Some tea companies, under the guise of selling tea, promise to repurchase the tea with interest after a certain period of time. Such products generally use scarcity and high appreciation potential as gimmicks, and raise prices by controlling production capacity, hoarding products, and promoting high-interest repurchases. In the end, they often end up with difficulty in cashing the principal and interest and a sharp drop in prices. In this model, tea is no longer a consumer product, but a financial product. Participants no longer make profits through product sales, but wait for the platform to repurchase or transfer it to the next buyer.

"Financial tea", which has lost its commodity attributes, has become a Ponzi scheme of passing the parcel, which is extremely risky. From the perspective of the transaction target, the standardization of tea itself is low, and the product valuation is difficult. In the case of information asymmetry, the underlying logic of "financial tea" such as scarcity and value preservation is itself far-fetched. From the perspective of the product trading environment, "financial tea" is traded with products issued by individual companies, which makes the product issuers in a monopoly position in the market. The issuers' hoarding or increased production behaviors directly disturb the market price. At the same time, many investors have no contracts, no agreements, and no physical objects in the transaction process. In the absence of effective supervision, market participants only conduct transactions based on their "reputation" that lacks certification, which is tantamount to sheep walking into the tiger's mouth for investors.

In fact, local regulatory authorities have long warned of trading risks for "financial tea". In October 2023, the Fuzhou Financial Work Office issued a "Risk Warning on Preventing Illegal Fundraising in the Name of "Financial Tea" and "Financial Management Tea", etc.", stating that the business model of "financial tea" and "financial management tea" is divorced from the essence of commodity trading, and has evolved from normal sales behavior to an investment and financial management behavior that pursues high returns, hiding major risks and may be involved in illegal fund-raising. In July this year, the Development and Reform Bureau of Liwan District, Guangzhou City issued a document to remind that "financial tea" and "financial management tea" hide major risks and hidden dangers. Investment should be made through formal channels. New investment behaviors should be carefully considered to prevent participation in illegal fund-raising activities.

Why do "financial tea" explosions happen again and again despite frequent warnings of risks? Objectively speaking, the prevention and control of "financial tea" is difficult. Industry insiders pointed out that most "financial tea" can eventually achieve physical delivery, so to a certain extent it hovers on the edge of financial contract fraud, illegal fundraising and pyramid schemes, which brings regulatory challenges to relevant departments. At the same time, "financial tea" transactions often lack formal contracts and legal protection, which leads to insufficient evidence for victims to defend their rights and difficulties for the case-handling authorities to obtain evidence. In cases where transaction procedures are rough and sellers have insufficient assets, even if they win the case, they still face the problem of difficulty in execution. The fact that many participants are lucky is also an important reason for the frequent occurrence of such incidents. Public reports show that some participants realized the risks of "financial tea" at the beginning of their entry, but they were tempted to see people around them making profits, or they got out of control after a few small attempts, and eventually lost all their money in the hope that they would not be the last person to pass the parcel.

Faced with governance challenges, regulatory authorities should clarify responsibilities, intervene in cases effectively and promptly, and identify and deal with risk points as early as possible. While strengthening supervision, they should also continue to increase investor education, popularize financial knowledge, and enhance the public's risk awareness. (Source: Economic Daily Author: Xin Ziqiang)