Increased Interest In Buying “Portable China” By Domestic Bidders At Auctions Around The World Has Wider Implications
Today, a piece on the internationalization of the Chinese yuan by Ha Jiming, the chief economist at China International Capital, China’s largest investment bank, was published on Forbes.com. Ha believes that — within the next decade — the yuan will be a fully internationalized currency, and that the implications for this will be important and far-ranging:
Not long ago, China’s currency, the yuan, wasn’t traded beyond the country’s borders. Yet in the next 10 years, it will become fully internationalized and join the ranks of the world’s main reserve currencies, beside the dollar and the yen.
The global march of the yuan is an extension of China’s success since the launch of its economic reforms 30 years ago. The status of a currency is commensurate with the economic power of a country. The U.S. share of global GDP, for instance, increased from 10% at the turn of the 20th century to 20% after World War I, raising the dollar’s importance; the rise in Japan’s share of global GDP from 7% in 1970 to 16% in 1988 also elevated the yen’s role as a reserve currency.
[T]he internationalization of the yuan will benefit China in general by increasing the appeal of Chinese assets and pool of investment funds. This is similar to what happens when a company’s stock becomes a blue chip. International demand for yen assets increased significantly in the 1980s, as did global demand for U.S. assets at the turn of the century.
Ha’s last point seems to be the most important in many ways, as it indicates the effect of the internationalization of the yuan on Chinese assets — which would, naturally, grow in value along with the yuan. This fits with what we’ve pointed out before, which is that portable Chinese assets (arts like antiques and contemporary artwork and other rare or scarce goods) should benefit the most from the globalization of the yuan.
Recently, Business Intelligence also looked into China’s monetary policies, and the long-term effects macroeconomic market forces will have on investors in “portable Chinese assets” as well as China itself:
In a series of recent policy moves and announcements through official channels, or increasingly through indirect ‘economic ambassador’ addressing conferences or talking to western reporters, China’s intentions and ambitions are becoming clearer.
In June, a ’senior researcher with the ruling Communist Party’ said China should buy more gold because the dollar is poised for a fall and the metal is needed to support the greater international role envisaged for the yuan.
Li Lianzhong, who heads the economic department of the Party’s policy research office, said China should use more of its US$1.95 trillion in foreign exchange reserves to buy energy and natural resource assets.
[A] combination of recent ‘revelations’, including the IMF SDR-bond issue, the Hong Kong Yuan bonds, the doubling of gold reserves, and the “Beijing Put” can only be positive for gold and negative for the Dollar.
If Ha’s op-ed and other articles like it are correct, and the yuan does, indeed, become a more global currency, investors who put their money into China-based assets could potentially benefit quite a bit. Although larger investments like real estate in China are nothing if not shaky (sometimes literally), portable assets have gained popularity in recent years because they are easy to transport and are a form of “moveable China” that can be kept safely for years until the investor is ready to sell them. One of the most popular forms of “portable China” is, of course, art. While antiquities have traditionally been popular among western collectors and investors over the years, contemporary Chinese art has been seen as a form of portable investment over the last 20 years, with rapid growth seen in the last 5 years. While prices have adjusted along with other asset classes in the last year, we see contemporary art roughly corresponding with China’s economic growth and trending upward — particularly since domestic mainland Chinese collectors are becoming more numerous and home-grown auction houses like Poly and Guardian are gaining ground in the Asian auction market.
As the RMB gains both value in relation to other global currencies, holders of Chinese assets (particularly the portable ones) stand to gain from measures currently starting out, from China’s call for a more flexible world currency, to China’s early experiments with currency swaps, to the growing Chinese buyer base for assets of all kinds. Although individual markets may look like a rollercoaster sometimes — and art is no exception — macro-level issues existing outside of the art world, taking place in the meeting rooms of the IMF and in economic negotiations between two countries’ finance ministries, will inevitably affect the price of all types of assets in coming years — Art is no exception.