Is China a booming market in every industry?
Critical look at the 2016 Chinese art auction market.
China-crazy investors
From the last 4 years of writing term paper, bachelor thesis and master thesis on China, the idea of China being a hot spot for investment has deeply sunk in my mind. Second largest economy, representing US$11 trillion, or 14.8% of the world economy in 2017 and growing at record pace of 6.7% per year. China has attracted US$139 billion of foreign direct investment in 2016, making it the third largest FDI destination in the world. Coupled with the attractive investment environment these facts leave no doubts that China is THE market to invest in.
What about art? Let’s have a look at the numbers in auction sales of Chinese artists both within and outside the country. What we see is that China was a booming market up to 2011 with an astounding 500% growth during the three-year period between 2009 and 2011 (after the 2008 Olympics in Beijing), when the sales picked at almost US$12 bln, leaving US and UK markets as second and third, respectively. However, since then the market has been slowly decreasing along with internal demand in mainland China. Overseas sales are slowly picking up, except for the 2016 slight downward trend.
Therefore, art collectors are not “China-crazy” anymore and there must be reasons for it. Let us follow typical case-interview scenario: sales equals price multiplied by volume.
Hypothesis 1: average price of pieces sold is lower.
Hypothesis 2: volume of lots sold is lower.
Price up, volume down
When looking at different price segments, the growth in the mainland China market was mostly driven by the high-end market (¥10 million and above). This price segment alone accounted for 29% of the total sales value in 2016, more than double what this number was two years ago. As a matter of fact, 10 lots were sold above $14 4 million (¥100 million), as expensive art is seen as safe asset allocation by local wealthy.
As for other price segments, the size of the lower-end market (below ¥500,000) in mainland China remains almost unchanged year-on-year, while the volume at the middle (¥500,000–below 10 million) increased by 26%, driving up the average price within the region.
Turning to overseas market, we see that volume declined across nearly all price brackets, with the middle to lower high-end market (¥500,000–below 50 million) down by 32%. At the high end (¥10 million and above) of the market, a total of 171 lots were sold for $784 million (¥5 4 billion), accounting for 41% of the total sales value overseas (compared to 36% in 2015, and 30% in 2014) — mirroring the trend shown in mainland China.
The downward trends of pieces sold overseas can be explained through fewer auction houses offering Chinese art and antiques for sale. The number of such auction houses fell from 332 in 2015 to 324 in 2016 — the first time this number has declined in seven years after a historic 135% growth from 2009 to 2015. Alongside, the number of lots offered and sold dropped down by 13% and 6%, respectively, from 2015.
Going deeper
In order to understand the nature of the market fluctuations it is not enough to simply know that the volume is going down and the prices are steering up. We have to ask “why”? Why is the volume of lots sold overseas along with the number of auction houses offering Chinese art has decreased? Why mainland China is moving towards high-end market with fewer pieces purchased?
Answering the first question, it should be mentioned that the taste for Chinese art is still developing in the minds of North American art collectors and has to be supported by the experts and appreciators. Guggenheim along with the curator of the exhibition “Art and China After 1989: Theater of the World”, Alexandra Munroe, have taken a bold step to explain Chinese artists’ pain to the privileged Americans. But many names of the Chinese artists still sound unfamiliar and, thus, not trustworthy for purchasing.
Turning to the second question, local collectors value historical heritage and trust art to be worthy long-term investment. Although mainland Chinese art world is very active in exhibiting contemporary and digital installations (which is easy to spot in the Beijing Must-see Art guide), the canvas of Chinese market is very different in terms of artistic styles beloved in the country. Alexandra Munroe points out in her interview:
“…contemporary art is only one aspect of a huge cultural industry in China. We have to remember, ink art and calligraphy are still by far the dominant genres of art, and the contemporary art market in China is dominated ink artists”.
Not surprisingly, in 2016, an exceptionally strong growth (12%) was seen in the Fine Chinese Paintings and Calligraphy category — the largest category in mainland China. The report states, that the growth was driven by an increasingly strong market for Classical Chinese Paintings and Calligraphy, in which the average price increased from US$57,629 in 2015 to US$71,254 in 2016.
Takeaway
I would like to finish off with a notion from Munroe’s interview about the Guggenheim exhibition:
“You don’t have to be an expert on China to understand this show, and I don’t want you to leave as an expert on China. I want you to leave as someone who is more aware of the complicated stakes of being a member of this world today with a country like China present. There are realities at work here that we, as privileged Americans living in our own highly sophisticated art world, have not had the occasion to contemplate.”
You might say that for a regular investor it is not necessary to study art, to understand art. Yet, by going deeper you are able to foresee market trends and make better-informed decisions. But beware, as soon as you go deeper, you are no longer a cold-minded investor, you are an art collector. And then it is your choice to follow the numbers or follow the heart.
Data taken from:
Global Chinese Art Auction Market Report 2016 by Ning Lu (author) and Yu Jinsheng (consultant) published by Artnet Worldwide Corporation and China Association of Auctioneers.
