January 17, 2013

Five Predictions For The Chinese Art Market In 2013

Maturing Market Means Buyers Will Remain Discriminating, As New Collectors Enter Market

China Guardian's first Hong Kong auction doubled pre-sale estimates

2012 proved a more complex and challenging year for major international auction houses and domestic Chinese houses alike both in Hong Kong and mainland China, coming off a stellar 2011 during which the Chinese art market grew to 210.8 billion yuan (US$33.8 billion). With leading collectors holding onto their artwork and antiques more tightly amid a slower macroeconomic climate, auction houses finding it more difficult to procure top-quality artwork, and mainland Chinese collectors spooked by punitive import taxes, bidding at high-profile auctions was markedly more restrained, as Chinese collectors homed in on proven works by blue-chip artists while ignoring lesser works by the same names.

At the same time, home-grown Chinese auction houses like China Guardian and Beijing Poly kicked off their broader expansion efforts last year, taking on established players like Sotheby’s and Christie’s in Hong Kong. In its first-ever sale in Hong Kong this past fall, China Guardian raised an impressive HK$354 million (US$45.7 million), indicating that the new entrants to the market are not to be taken lightly. So what do we expect to see this year, and what did we learn in 2012? While it’s always difficult to make predictions when Chinese art collectors are so nebulous, geographically diffuse, and motivated by so many factors, we expect five trends to intensify in 2013: rising confidence; market maturation; intact motivations; more serious collectors and fewer speculators; and greater scarcity of top works influencing pricing.

What We Expect In 2013

Zhang Xiaogang's Tiananmen No. 1

1. More Confidence: In the year ahead, we expect the environment in the Chinese art world to improve as collector confidence rises amid a better economic climate and, potentially, a compromise in Beijing over art import taxes. In the run-up to the expected construction of Beijing’s freeport this year, Beijing may look to improve the broader system for encouraging collectors to bring items purchased at overseas auctions to China, a move that would be welcomed by Chinese collectors particularly operating in the modern Chinese art and Chinese antiquities segments. Often, auctions in the latter category in London, New York and Hong Kong are a regular destination for mainland Chinese buyers, as top-quality pieces are often found overseas. Additionally, it’s becoming clear at auctions worldwide that serious Chinese collectors understand the historical and cultural importance of Chinese art and antiques, rather than simply their economic value, and are buying for a myriad of personal and financial reasons.

2. Market Maturation: Less frenzied auction bidding is also a sign of maturation in the Chinese art market, with several Western auction houses now requiring deposits to deter non-payment by bidders. While this perhaps hits the bottom line in the short-term, shaking speculators and less serious bidders out of the market will likely benefit the Chinese art auction market over the long-term, preventing unsustainable price spikes for lower-quality works or less-established artists.

3. Motivations Intact: Additionally, we expect to see an uptick this year in the Chinese art market (particularly in the contemporary segment), because the fundamental motivators for wealthy Chinese art collectors remain in place — a paucity of options for diversifying assets, a strengthening yuan, “face” and prestige among peers, demand for portable assets, and threats of inflation among them. As Gulf News noted this week, observers expect the ultra-wealthy, particularly in emerging economies, to get more involved in the auction market this year. According to the news site, “art as a financial instrument is likely to play a role in the race to hedge possible rampant inflation that could result from ongoing hyper-accommodative monetary policy. Investors are also comforted by low correlation with other asset classes and the ability to park their money in real assets.”

With blue-chip art often referred to as a remarkably consistent asset class on a historical level, expect to see Chinese demand remain strong and pragmatic for the best and most valuable artwork and antiques.

4. Fewer Speculators, More Serious Collectors: Echoing, in many ways, that same sentiment, Chinese art collector Zhu Shaoliang recently said that any talk of a significant dropoff in the Chinese art market this year is highly unlikely, as major buyers have not let up in their pursuit of top-quality artwork. Said Zhu, “Their collecting activity is not influenced by economic circumstance; if good objects emerge, they will definitely be interested. The reason there have been some mid-to-low grade objects at auction is because of the strong, destructive force produced by investors and speculators.”

If — as we expect — the Chinese art market is populated more by serious collectors this year, intent on holding onto quality works to sidestep inflation, give face, populate private museums and diversify assets, 2013 could be a better year all around for auction houses in mainland China, Hong Kong, and worldwide.

Zeng Fanzhi's "Mask Series" sold in Hong Kong last year for nearly double its low estimate

5. Top Works & Artists Increasingly Scarce, Bargains Still To Be Had: In addition to more cautious bidding by newer Chinese collectors, one of the factors leading to lower overall buyer volumes last year — according to major auction houses like Sotheby’s and Christie’s — was the difficulty in procuring top works by blue-chip artists. For certain artists in segments like modern, classical and contemporary Chinese art, the number of available, high-quality works is becoming smaller, causing per-piece prices to continue rising regardless of more particular bidding by collectors. At the same time, baseline prices are still rising slowly against established Western names, making Chinese art still relatively undervalued — something that Chinese collectors keenly understand, which is why they’re purchasing only the best works now and holding onto their collections.

Aside from baseline prices for modernist Chinese painters like Zhang Daqian and Qi Baishi, Chinese buyers have pushed the boundaries of pricing in the contemporary art market as well, leading prices for the best works by top Chinese contemporary artists to pre-global economic crisis levels. As top Western contemporary artists like Warhol, Rothko, Still, Lichtenstein, Bacon and Basquiat all sit firmly in the US$5-50 million range at auction, as time goes by we should see auction prices for multi-million-dollar living contemporary Chinese artists like Zhang Xiaogang (whose works broke the $10 million mark in 2011 and still sell well into the millions of dollars), Zeng Fanzhi (who reached $9.7 million in 2008), and others continue to climb in tandem with the broader global auction market and gradually close the gap with their Western counterparts.

What Did We Learn In 2012?

Rather than a doom-and-gloom scenario, 2012 actually served to illustrate how the Chinese art market operates in a very gray area, with some segments performing solidly — albeit at lower volumes, for a variety of reasons — and others less so. A hopeful sign for international players like Sotheby’s and Christie’s, and increasingly global Chinese houses like China Guardian and Beijing Poly, is that Chinese collectors have not lost their appetite for high-priced, top-tier art and antiques.

The Long Museum, China's largest private museum, recently opened in Shanghai

Recently, at the Third China Art Market Summit Forum in Beijing, participants noted that 2012 was a “year of deep adjustment” for the Chinese art market, over the course of which Chinese collectors engaged in more rational and restrained bidding, focusing their efforts on artists with proven track records. Evidence of this was on show at China Guardian’s first Hong Kong auction in October, when hard-to-get works by key players stole the show. At the sale, Zhang Xiaogang’s “Tiananmen No. 1” sold for US$2.7 million, over its low estimate of $1.9 million, Liu Wei’s “Revolutionary Family Series” went for US$2.25 million, over a low estimate of $1.5 million, and Ding Yi’s “Appearance of Crosses 94-7” sold for US$203,807, nearly three times its low estimate of $77,395.

As Carson Chan, managing director of Bonhams Asia, said this past September of the recent bidding habits of Chinese collectors: “I think Chinese buyers are now buying more carefully and more selectively…They will only invest in pieces that have both a historical significance and art value. So you have to have extremely clean provenance and background, and this goes across the board between paintings and ceramics.” Jing Daily has previously noted that Chinese bidders tend to be highly pragmatic, and with speculators increasingly being shaken out of the market last year, the majority of purchases at auction were made by more serious long-term collectors, intent on buying as a true investment rather than something to flip.

Art / Auction / Business & Finance / Culture / Features / Investment / Market Trends
Tag: art collector, auction, auction market, beijing poly... , More
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