The Chinese Walnut Bubble

The “ghost fleet” of container ships lies anchored and inactive off the coast of Malaysia.

Today we return to China, the incandescent heart of global world trade.  The Chinese economy has emerged from the mud, blood, & chaos of the 19^th and 20^th century to become a world-straddling giant. GDP has grown at rates of 5% to 10% (or more) per annum, year after year.  Entire giant cities are springing up, seemingly overnight. Roads, airports, canals, and railroads are being rolled out like carpet.  The Chinese are magnificent, invincible, beyond the ordinary constraints of destiny! Yet (as you might have noticed) outside of China, there is an international financial crisis going on.  One wonders how the Chinese economy, which is still based around selling socks, buckets, and cheap plastic crap goods to everyone in Europe and the United States is coping with the huge declines in demand from those sectors.

 

An inscribed walnut-shell snuff bottle (Ching Dynasty, ca. 1736–1799. photo Bonhams)

But let’s put such a question aside for now.  That was all back-up information to the real subject of today’s post: walnuts!  Walnuts are edible seeds from trees of the genus Juglans (a word which means “acorn of Jove” to honor the virility and fecundity of the king of the Roman pantheon).  Walnuts are interesting plants in all sorts of ways.  Both the wood and nuts are commercially important. The trees conduct extensive chemical warfare against other plants.  There are dark and captivating myths concerning walnuts in cultures from East Asia to the Mediterranean to North America.  However, we will have to address the fascinating botanical aspects of walnut trees in a future post, because right now there are more immediate concerns: a speculative bubble for actual walnuts has formed in China and the nuts have become the focus of intense price inflation.

 

Buying walnuts at Yayuan International Antique Market in Beijing August 26, 2012. (photo by REUTERS/Stringer)

In China, walnuts have long been a popular plaything.  Handling the seeds is thought to increase blood flow, and the wealthy have long regarded walnuts as a status symbol. An article from Reuters (which is apparently a real article rather than a satirical joke) underlines the Chinese affection for walnuts by interviewing an ardent collector and enthusiast:

The bigger, older and more symmetrical, the better, says collector Kou Baojun in Beijing, who owns over 30 pairs of walnuts, most of which are over a century old and have taken on a reddish shine from years of polishing in the palm. “Look how well these have aged. Playing with these kinds of walnuts isn’t for ordinary people,” Kou said.

Like tulips in 17^th century Holland, Chinese walnuts (particularly ancient, symmetrical, or large specimens) are trapped in a speculative bubble. Chinese bankers, investors, and speculators have been pouring money into building up light industrial production capacity and driving exports to the rest of the world.  As international trade withers, it is unclear how to reallocate all this money.  Ordinary Chinese investors have been fleeing the Chinese stock market because of widespread economic uncertainty, flagging exports, and because all-too-familiar shenanigans have made it difficult to invest in equities without being fleeced.  As this great river of capital backs up and flows elsewhere, strange markets are created, such as the thriving bubble market for dubious and or mercurial cultural objects like special gourds, esoteric teas, rare tropicl hardwoods, and, yes, walnuts.  A pair of particularly fine antique walnuts was recently listed (on a walnut trading site) for a price equivalent to more than $30,000.00.

The Chinese central government is desperately trying to “cool” the economy, but, in the mean time, people see walnuts appreciating in value by 200% and they can not resist the lure of easy money (even if they are literally investing in common nuts which grow on trees).  Cynical economists have speculated that the central government does not care about such frothy markets, since the craze for esoteric cultural items is at least not causing rampant inflation in food or energy prices, but those with a historical mindset have to wonder how this bubble is going to pop.

The exact moment a bubble is burst (Photo: BARCROFT MEDIA)