Garlic has greatly affected the Chinese economy for centuries, and we can expect it to for many years to come. Although garlic most likely did not originate from China, its first recorded cultivation and use dates back to 2000 BC, when the Chinese first began using it to preserve foods and treat indigestion. China became the largest global exporter of garlic in the late twentieth century, but after decades as the global leader in garlic, China might now be more apprehensive about its product.
Garlic prices took a dip during the 2008 financial crisis, hurting farmers who had witnessed a steady profit increase since China began opening its market. However, while the financial crisis was bad for garlic prices, the swine flu epidemic was not. China was a particularly visible victim of the 2009 H1N1 virus, with news agencies broadcasting about outbreaks in urban centers and confirmed cases and deaths in almost every province. This affected garlic prices because the Chinese have believed for millennia that garlic can treat a plethora of illnesses. While organizations like the United States’ National Center for Biotechnology Information, a federal agency, confirm that raw garlic has antibiotic, antifungal, antiparasitic, and antiviral properties, the Chinese have long since been using it in medicines and sickbed stews. Now, with a deadly virus sweeping through the nation, people began buying garlic by the jin, driving the price back up.
Now history is strewn with examples of speculative bubbles. Perhaps the most famous was the Dutch tulip bubble of 1637, and it was a housing bubble to instigated the 2008 financial crisis felt around the world. Chinese garlic was a good candidate for the next bubble. Unpeeled heads of garlic can store in dry environments for who-knows-how-long, so speculators started buying garlic simply to put in storage. Their plans were to sit on the garlic until the price went up a significant amount, so that they could flip them, much the same way that real-estate developers flip houses: by buying unpopular, cheap properties, improving them in need be, and then selling them again at a higher price if the market goes up. But in the case of garlic, speculators didn’t need to do anything. The swine flu frenzy drove up prices all on its own, and all they had to do was wait.
That’s the thing with speculation; it’s all about hoping and waiting, because if the garlic buyers, tulip buyers, or real-estate developers knew for sure what the future price would be, it wouldn’t be an investment. So they swoop in to buy the good when they think the price will increase in the future, but when there are fewer items to sell in an already growing market, the price will only increase. Speculators increase the price of goods like garlic simply by buying them up and increasing demand, all for the sake of garlic flipping, and they let them them sit in storage while other investors hunt for their share and desperate citizens try to nurse their ill.
So what happens when bubbles burst? When prices get so unseemly and artificially high that speculators cannot flip their garlic at a profit, the system collapses. When speculators stand to lose money after paying the initial costs and the storage costs and have to default on the loans they took out to buy the garlic in the first place, every cog in the machine that propped the price of garlic to begin with just collapses. This could have disastrous implications in our example. China supplies eighty percent of world exports in garlic, and they export to many countries. Most cultures and cuisines incorporate garlic. A collapse in garlic prices and a mass defaulting of bank loans would without a doubt affect Chinese trade greatly, with global implications.
But China is not like any other country. Their confusing, cloak-and-dagger, partly-authoritarian-partly-capitalist government allows them to easily affect prices, and the Chinese state has had a hand in managing garlic prices before they reach bubble bursting levels since 2009. The bubble has swelled and deflated, but it has not burst to this day. There is no other example quite like this in history, because no other state has controlled prices this way before in a bubble, neither forcing the price fully back down nor letting it rise naturally. And so, with essentially no end in sight, we only have more questions. How long can China manage prices in the garlic bubble? How long can their unique government stay the way it is? How long can this bubble flirt with bursting? And if it is quite some time before it bursts, and actors in the global garlic market are accustomed to the high prices, what will happen when it all finally comes down?