The price of bulbs hasn’t rocketed like this since the Dutch tulip mania in the 17th century. Garlic has become China’s latest bubble, with wholesale prices up fourfold nationwide.
In Shandong province, China’s largest garlic-producing area, they have risen 40-fold. Garlic is now China’s best-performing asset this year.
Part of the explanation lies in supply and demand. When the global recession hit last year, Chinese farmers reduced cultivation by around 50%, while the widespread belief that garlic can ward off swine flu has stoked demand.
But “there appears to be much more demand from speculators than consumers”, says The Economist. Speculators, drawing on abundant liquidity in the system stemming from the government-induced lending spree, are playing the small market by hoarding supplies and bidding up the price, says Morgan Stanley’s Jerry Lou.
“Whenever you have too much bank lending, the liquidity spills everywhere”, he says.
Garlic is “just the area of the moment”. This is certainly consistent with news reports from Shandong, says Robert Cookson in the FT. Banks and cash machines have apparently run out of money amid “frenzied trading”.