Growing Pains in the Chinese Art Market

The Financial Times has a very good article on the recent growth, and concerns that typically come with that fast growth in the ever expanding Chinese art market.

We are all aware of some of the payment issues, but there seem to be rather high buy in rates at mainland Chinese auction houses, as well as a problem with fakes.  That is one reason international houses have done well as many pieces have provenance which reduces some of the concerns over the legitimacy of the property.

The article also states there are payment problems for the Chinese auction houses as well.  The problems go beyond the known issues at many international and regional houses. One report on Chinese auction houses states that 40% of purchases above $10 million RMB made after the fall of 2010 have yet to be paid in full.

The FT reports

The CAA’s report reveals another strange fact: that in Chinese auctions in 2011 the rate of “buy-ins” – that is, when the item doesn’t reach its reserve – was fully 52 per cent, which is surprisingly high in a market that is supposed to be booming. This is put down partly to “quality-related” issues – a delicate euphemism for those fakes. But some auction houses apparently count buy-ins (which do see the hammer fall in the room, a little bit of auctioneering theatricality) as actual sales: another factor that would hopelessly skew the true picture.

So, what do we know for certain? There is no doubt that the rise in the market has been enormous in the past couple of years. The expanding wealth of Chinese buyers coupled with difficulties in other sectors, such as property, have fuelled a trend towards investing in art. It seems no coincidence that the moment when the Chinese government introduced strict measures to cool an overheated property market, in 2009-10, saw a sudden very sharp rise in art buying.

Because of the faking problem, items from abroad with a traceable provenance are more sought-after. Almost 40 per cent of the highest-priced items on the block in China last year were consigned from outside the country to Chinese houses – foreign auctioneers (to their great frustration) are still not allowed to operate on the Chinese mainland. This, coupled with China’s enormous taxes on art sales, and the fact that the renminbi is not a fully convertible currency, means that the foreign companies’ focus on Hong Kong as an art-trade nexus for the whole region is ever more intense.

Source: The Financial Times