The Economics of Chinese Art

By staff reporter GUO HONGYUAN

IN mid-March 2011 the British Art Market Federation announced that China had overtaken the U.K. to become the world’s second-largest art market. Only a week later, France-based Artprice, which maintains the world’s largest data bank of fine art auction records, disclosed in its 2010 report that China had climbed past the U.S. to become the top ranking country in terms of annual fine art revenues.

The report says that in 2010, China accounted for 33 percent of global fine arts sales, versus 30 percent in the U.S., 19 percent in the U.K. and 5 percent in France. Beijing, Shanghai, Hong Kong and Hangzhou are the new hubs of the global art market. And four Chinese artists appeared in Artprice’s Top 10 list, with Qi Baishi in the second position, compared with a single entry in 2009.

According to Thierry Ehrmann, founder and CEO of Artprice, the figures represent a turning point in the history of the global art market. The Artprice re-ranking was widely covered by media around the world, and sent shock waves through the global art market. However, this historic ascent of China was received coolly in art auction circles. In fact, as early as in November 2009, an analysis of China’s art market issued by China Central Academy of Fine Arts had predicted that the world’s top three art markets would soon shuffle positions. Originally the order was the U.S., the U.K. and China, but a change was in the offing because the period between the 2008 autumn auction and 2009 had seen a large number of artworks auctioned for over RMB 100 million a piece in China. In Poly’s 2010 spring auction in Beijing the Chinese calligraphy Di Zhu Ming by Huang Tingjian was hammered out at RMB 436.8 million, the highest price ever paid for a Chinese work of art. In the autumn Ba Ren Ji Shui Tu (Ba People Fetching Water) by Xu Beihong was sold for RMB 171 million at a Beijing Hanhai auction, setting a new record for Chinese paintings.

The art market is thriving in China. This fine art exhibition and auction held in Beijing attracted a lot of collectors.                                                       China Foto Press

Capital Density Determines Prices

Wang Dingqian, a renowned collector in Taiwan, says that of the top ten Chinese artworks drawing record auction bids only one piece was sold abroad– a Yuan Dynasty jar painted with the story of Guiguzi auctioned in London in 2005, while the others were all sold in China during 2009 and 2010. Immediately after the outbreak of the global financial crisis, the ranking of artwork sales experienced radical changes that placed Chinese auction companies and China’s domestic art market at the international forefront.

The next focus of attention is bound to be the valuation of art works. For Liu Shangyong, general manager of Beijing Rongbao Auction Co., Ltd., Wang Dingqian has made an important point: China has earned the right to determine the prices for its artworks, which is a crucial form of control in the art market. According to Liu, the Chinese art market has been undergoing epoch-making changes since last year. Unlike the situation in the 1980s, when trade of art works was resumed after prohibition during the “cultural revolution,” and prices were set according to buyers’ tastes, the large amount of capital flowing into the market is becoming the key factor in setting prices now.

Initially, capital entering the Chinese art market was mainly from abroad. A typical example is the foreign capital that poured in to commercialize Chinese contemporary art. In a very short time, the capital influx prompted a big jump in the value of contemporary art. However, following the international financial crisis in 2007, China’s continued economic growth put its investors in a comparatively stronger position, and domestic capital moved from sectors like real estate, energy, stocks and finance into the art market. The massive influx of both foreign and domestic money has boosted the prices not only of the classics of both imperial and revolutionary times but also works by contemporary masters. In fact, the four Chinese painters in Artprice’s list of ten most sought-after artists are all from the last category. “There is no fan or collector who could single-handedly push prices up to such a height; only industrial and financial capital has such clout. However, the artworks chased by such capital can fetch very high prices; other more marginal artworks will have difficulty achieving a proper valuation for some time to come,” warns Liu Shangyong.

Fear of Bubbles

The prosperity of the Chinese art market has led some to question whether a bubble is in the making.

An analysis of the 2009 Chinese art market has warned that a flourishing art market in China alongside a weakening U.S. dollar will accelerate the inflow of “hot money” here. The positive effect is that capital influx enables the Chinese art market to stabilize or even continue to rise in short term, thereby strengthening the country’s position and influence in the global art market. However, the worry remains that the market growing at such a manic pace and the widening gap in price tags between Chinese artworks and their foreign counterparts will eventually make the Chinese market seem too frothy – driving foreign investors to cash out their holdings of Chinese art works in large numbers.

Ma Weidu, a famous collector and curator of China’s first private museum, thinks this a likely scenario. He points out that China should not be overjoyed at taking first place in art auction revenue generation because the low taxes charged on the purchase and sale of art in China means dealers can easily play sleights of hand to drive up prices at auction. It is entirely conceivable that some Western institutions might take the opportunity to encourage higher bids and achieve significant cash profits.

The Chinese art market is an emerging phenomenon, not as well organized and regulated as those in the West. “Art collecting is a kind of luxury, and still a very risky investment,” concludes Ma Weidu.