The Chinese Art Market

Fellow appraiser Martha Peck send me this good article from the Economist on the Chinese art market. The article notes that while art sales in the U.S. and Great Britain remain strong at best, consistent at worst, sales of fine art in China have fallen 40% since 2011. The article also mentions difficulties within the Russian and Brazilian markets at well.  This is a good article to review and keep in mind when writing market reports and doing market trends and analysis.

The Economist reports

LONG scrolls adorned the walls and stretched delicately over tables. There were serene landscapes in muted blues, greys and browns. Birds and blossoms provided flashes of orange and pink. These tranquil scenes were the backdrop to a busy week for Hong Kong’s art market. On display in a cavernous convention hall, they were just some of the thousands of items in Sotheby’s autumn sales, which were themselves part of a series of recent auctions across Hong Kong. Collectors, analysts and auctioneers watched the sales intently. There were some bright spots. On October 6th, for example, Fu Baoshi’s scroll of graceful women (pictured) fetched an impressive HK$35.5m ($4.5m). But the prospects for China’s art market are cloudy.

Worldwide, art sales are booming. They reached a record €51 billion ($65 billion) last year, according to the European Fine Art Foundation. However, success is uneven. America’s art market is bustling; sales in Britain rose last year, too. But what was until recently the world’s hottest market is decidedly cooler. Auction sales in mainland China were $5.5 billion last year, about 40% below their peak in 2011, according to a new report from the China Association of Auctioneers and Artnet, an online auction house. Global sales of Chinese art and antiques were $7.9 billion, down 31% from three years earlier. A return to rapid growth seems increasingly unlikely.

China is not the only country where art sales have faltered. New collectors in middle-income countries often start with domestic art, explains Sergey Skaterschikov of Skate’s, an art-market research firm. It is little surprise, then, that sales of Brazilian art have slumped along with its economic prospects. Russia’s art market has been particularly wobbly. From 2001 to 2007 sales of Russian fine art jumped nearly tenfold to $651m, according to Artnet, as newly flush Russians sought to build collections and diversify their assets. Companies rushed to meet demand. In 2004 a new auction house, MacDougall’s, opened in London to deal exclusively in Russian art. Sotheby’s and Christie’s, the world’s biggest auctioneers, held new sales to woo Russian buyers. The financial crisis sent the market plummeting in 2009, but by 2013 it seemed to be reviving. Last year, however, sales dropped by 8%, thanks to sinking oil prices and fallout from Russia’s involvement in Ukraine.

China’s troubles are even bigger and more complex. About ten years ago its art market began to soar. Unfazed by the global downturn, new collectors, speculators and even the government continued to spend heavily. In 2005 China accounted for less than 5% of global art sales. By 2011 its share had risen to 30%, and China had become the world’s biggest art market.

Then things turned choppy. There was a big correction in 2012, when global sales of Chinese art and antiques fell by 43%, only to rebound in 2013 and then fall last year. Slower economic growth has sapped demand. An official crackdown on corruption and lavish spending has not helped. Just as important for the auction houses, the supply of the most exceptional pieces of art has tightened, as would-be sellers wait for higher prices. Last year more than half of auction lots were unsold, which suggests soft demand or mediocre-quality supply—or, probably, both.

China’s problems have affected some companies more than others. So far Sotheby’s and Christie’s have been resilient, thanks to their diversified, global businesses. In July Goldman Sachs reckoned that total auction sales at Sotheby’s were up by 5% so far this year. Poly Culture, the biggest Chinese auctioneer, has fared worse; its shares have fallen by about half since its initial public offering last year. In an effort to buoy the market—Poly is still mainly state-owned—the firm has become quite the collector. Last year Poly expanded its own stock of art by 82%. This shopping spree has had little apparent effect on its own sales. Revenue for the auction business fell by 27% in the first half of 2015, compared with the same period last year.

Trying to look on the bright side, some auctioneers and dealers argue that a less frothy Chinese art market is a sign that it is maturing. But two factors make it hard to know when the market will return to growth. First, it is difficult to guess when more potential sellers will put their art under the hammer. Recent financial turmoil may prompt some to do so, to raise cash; others may continue to hold out for higher prices. Making conditions for sellers even less appealing, the number of delinquent bidders is on the rise. Last year buyers failed to pay in full for 63% of works “sold” for over 10m yuan ($1.6m), up by 22 percentage points from 2013.

Second, many Chinese collectors of art are rather new to it. That makes it hard to predict trends in demand or estimate the price floor for particular works. Some may switch to buying more liquid Western art. This year Chinese buyers paid nearly $30m for a Picasso and $20m for a Monet at Sotheby’s auctions in New York.

Source: The Economist