China Sees Huge Rise in Garlic Prices

A look at the meteoric rise in the price of garlic — the best-performing asset class of this year — from Robert Cookson and Patti Waldmeir for the Washington Post Foreign Service:

Wholesale garlic prices in Beijing are now 15 times as high as in March, and still rising.

Jerry Lou, a Morgan Stanley China strategist who has researched the opaque market here, said speculators — fueled by the abundant liquidity sloshing around China — have moved into the small market and strategically driven up prices.

“You need a warehouse, a lot of cash and a few trucks. That’s how it works,” Lou said, describing garlic speculators’ tools of the trade. “Basically, what you do is try to arrest as much supply as possible, then you bid up the price. Moving garlic from one warehouse to the other, you make millions of dollars.”

Lou said garlic wholesalers told him that gangs that had amassed cash and credit from dealing property and stocks in other parts of the country had chosen the garlic market as their latest ruse.

More, from Leo Lewis, at Times Online:

The astonishing surge in the price of garlic makes it the best-performing Chinese asset class of the year. Two factors are driving the gains. Garlic, Mr Lou writes, has become a barometer for China’s wider issues of bubble formation. The massive flood of liquidity — created by the huge government stimulus package and unprecedented bank lending — has made a diverse range of assets the target of speculation. Garlic has joined property and stocks as a favourite market for cashed-up punters.

Helping things along has been a technical squeeze on the market. Chinese garlic is a big export commodity — 60 per cent of the garlic used in American restaurants, for example, is Chinese in origin. But last year China reduced its total garlic planting areas by 50 per cent, diminishing the overall supply and giving speculators a reason to assume future shortages.

The H1N1 virus, and the suggestion that garlic may offer some immunity from it, has also had an effect. Some believe that the suggestion may have been promoted by traders in Jinxiang.

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