I have been in China, now, for five years, and I have been searching the teapot markets for that long, too.  Indeed, the first pieces of art that I bought, here, were teapots.  As we have said in other reports (see, e.g, the In Country Analysis Page of our website), the teapot market has certain advantages over other Chinese art markets, in that teapots are sold by the many tea shops, the fact that they are all made in one area, Yixing, creates economies of scale in marketing, and the art has been further promoted by the government (remember, they have a lot of clout, here) as a truly Chinese art.  Of course, as we have also noted in other reports on the teapot market and the general art market, this skewed promotion has also caused excessive prices by some artists.

At Red Hill Capital and Leona Craig, we are investors and lovers of good art and crafts.  I began collecting art, in 1970, in college, and my initial purchases were ceramic art because it was both beautiful and useful.   I collected 18^th & 19^th century furniture, sculpture and paintings, during my career as an arbitrageur on Wall Street, in the 1980’s.  In the 1990’s, I took my collection of art and antiques, restored an 18^th century estate and created an internationally-acclaimed country inn.  Moreover, having designed and made furniture as a hobby since college, I made folk art and hand-carved and “antiqued” furniture, as a side business at the inn.  The reason that I mention those things is that I want you to understand that I have experience in art, in art markets, and, as an arbitrageur, a sense of internal comparison among art markets and their relationship to other investment markets.

The Chinese, in general, have little or no understanding of art.  Indeed, I have read a number of articles this year, in magazines and newspapers, saying the Chinese people buy art with their ears, not their eyes, that the uneducated nouveau riche Chinese overpay and have no idea if the art is good or bad, unless someone tells them.  I know many Chinese art dealers who admit that they know nothing about art but that it is a good investment and business.  I am not here to criticize.  To me, everyone is my guru because I learn from everyone, and I realize that we are all just different individuals and that good, bad, smart and stupid are all relative terms and depend on the situation.  My purpose is to determine the facts, to look at the causes of the situation, and to figure out if and how to benefit: that is the art of investment.

Up until only about a century ago, art was something that was owned by royalty, their family and friends.  Indeed, much of art, through the ages, has been commissioned by the royalty or other branches of the government.  A century ago, art was commissioned by the royalty and government to make coins, to furnish homes of the wealthy/royal class, to make portraits of family and important scenes.  The common man had no need for art; they could not afford to buy it.  In some cases, through history, owning certain artistic pieces was even prohibited at the threat of death.  In that regard, the general public of the world have had only a century of experience, even much less, if you want the more common man, with the possibility of owning art.  During that same time period, as has been able to change, more into a broader definition of art: some art for art’s sake, not just for practical purposes.  That regression, to being able to simply create, as we did as children, art that we want to create has opened up many new and creative avenues of art, during that time.  It has also opened up some avenues of crap that has been marketed well enough to convince people of artistic genius where it does not exist.

China has been a feudal system, basically, for millennia.  From princes to emperors, there has been a royal ruling class.  There were several decades where the people had democracy, then, they went into a feudal communist system, thereafter.  The people have existed, mostly, in a feudal agrarian society, and that has only been changing for a little more two decades.  If I compare it to the U.S., a half a decade ago, at least, people were concerned about home decoration, not just the rich, but also the relatively poor.  People bought “nice” furniture and that had some sort of framed “paintings” on their walls, and nice rugs on the floors.  Now, there is a growing new rich class, in China, and those are the market for home decoration and art as investment; the idea of home decoration has still not caught on with the billions of Chinese masses.

Art, like the rest of finance, is much about marketing.  Critics and dealers tell us that a painting is brilliant and valuable, just like stock brokers tell us that the price XYZ (never mind the details: you do not need to know anything about the company) is going up, and you will look brilliant and make a killing.  People, especially the new rich, understand that art can be an investment, but they usually have little experience in art, at least that is my observation, confirmed by many others.  Again, there is nothing shameful about not understanding art, just as there is no shame in some people’s lack of understanding of physics or cooking.  However, it does lead to those people overpaying for art, out of  unconcern about the amount of money spent, a need to show off, or because of duplicity on someone else’s part.  In turn, that can lead to distortions, in art markets, schools, styles, or artists.

Arbitrage is about taking advantage of relative differences between markets or investment asset classes.  The price of ABC stock must be correctly relatively priced with that of stock XYZ.  That is accomplished by relative PE (Price-EPS) ratio.  The return in the stock market must be priced correctly with that of the AAA corporate bond market, which must be correctly relatively priced with B-rated bonds and Treasuries.  Price per square inch of Van Gogh must be correctly relatively priced with Damien Hirst.  If prices are not properly relatively priced among all of the possible investments, there is an arbitrage opportunity represented by the inappropriate spread between the markets.

I have been in the arbitrage business for over two decades.  I understood the idea of arbitrage, even from my knowledge of quantum theory where arbitrage has some analogies.  As an arbitrageur, I see opportunities in non-mainstream investment strategies.  As a veteran of investment markets for over three decades, I have seen many irrational situations in markets, including distortions, misalignments, and bubbles, and I have taken advantage of many.

So, a general piece of information that we can take away from the discussion, so far, is that inexperienced people with a lot of money will tend to overpay, at least at times, for art that is heavily marketed to them..  The art markets, in China, are mostly supported, locally, by people with a lot of money or by ruling class people, many of whom know nothing about art except that it is supposed to be a good investment.   Buyers, like that, are susceptible to being told what is good art, and what it is worth.

On the other hand, most of the auction market for Chinese art is outside the country, including Hong Kong, Macau, London, and New York.  However, as the September Christie’s Chinese art and antiques auction showed, uneducated nouveau riche buyers are, now, even phoning in bids to those places from the mainland.  However, many of the sales of art, outside the country, are to people who know art and its proper valuation.  They have a further advantage in their buying, in that the Chinese Yuan is greatly overpriced, and most Chinese artists think in terms of their own local buying power, not the relative valuation of their art, in the world art market.   That is enhanced by the lack of information flow, into the country and because many of those artists cannot read anything but Chinese writing.  Of course, those who do rise to prominence on a larger-than-China art stage tend to command better-aligned prices.  There are even other skews, in the markets, for example, political art from China is appreciated, in the outside world, but not inside.  Artistic teapots are more appreciated, in the West than in China.  Indeed, there are even some crafty Chinese artists who do outrageous works, not always really good, either, that play to those audiences, in the west.

The teapot market has a number of advantages, in its economy of scales in marketing the Yixing name, in its promotion as a true Chinese art, like the older wispy watercolor paintings or calligraphic writing (what other country claims its written words as art?), in claimed tutelage or familial relations with famous teapot artists of the past century, and in purchases of teapots of certain artists by the right people.   A further advantage is that it is easy to keep inventory of small teapot art, in a small tea shop, of which there are many.  On the other hand, there are not many galleries for oil paintings because there is a general lack of local demand for those, it takes much more space to have a painting gallery, and tea shops also sell tea as a major part of supporting their teapot business, while galleries only sell paintings.  Moreover, there is even an additional utilitarian reason for buying a teapot: to make tea.  Those things, combined with lack of interest or understanding of art, have led to distortions within the teapot art market and with misalignments with other art markets.

As arbitrageurs, we do not like to overpay for art or any other investments.  We know that people paid tens of thousands for tulips, in the 1600’s tulip market bubble, and we know that U.S. investors overpaid for dotcom’s and technology stocks, in the 1990’s.  We know that they overpaid for oil a year or so ago.  We know that people are overpaying for some teapots, right now, and undervaluing others.  We also see a lot of people charging way too much for many teapots, in tea shops, teapot markets and galleries, and on-line.  That is why we have been especially careful in building our teapot art gallery over the past few years.   We have selected teapots that are artistic and reasonably priced, and we have tracked down artists who make beautiful and creative teapot art at reasonable relative prices.

There are a number of contemporary teapot artists who have either had famous mentors or are relatives, in one way or another, of famous past artists.  Given all of the government and other support, to begin with, and noting the importance, in China, of guanxi, the Eastern version of the old boy network, many of those artists have managed to raise their prices to relatively unreasonable levels.  Even though they crank out one after another copy of work that is either a copy of teapots by famous artists of the past or their own uncreative works, they sell those overproduced banalities for tens of thousands of dollars.  An original copy of a  teapot by Jiang Rong, a famous artist from the later part of the 20^th century will cost around $10,000 based on artistic quality and scarcity of originals.  A copy of a teapot by her famous father, Jiang Yan Ting, will cost even more.  On the other hand, I can buy a copy of not so bad quality at the teapot markets for several hundred dollars, at most.  I can buy a copy of a copy of a Jiang Rong teapot made by her adopted daughter for around $5,000, or I can buy a copy from another of her not-too-distant relatives for around a thousand..  In this case, I may buy a copy by an anonymous artist, if it is good quality and the price is reasonable, in the range that I mentioned, or I would buy one from the other elative, but not the overpriced one by her daughter: I am not into buying names.  We see similar situations among the members of other teapot dynasties.  We have our own sense of value based on the relativity of all markets, and we do not buy teapots that show no creativity but only have a name brand attached.  It is the same reason that we do not buy the work of painter, Li Zheng Tian, who has produced many copies of the same paintings, like some teapot makers, many of which were finished off by the assistants in his atelier.  We even know that part of the mispricing, in the teapot markets, is because members of the government are overpaying for teapots of “name” artists, just like they over pay for real estate.  We even heard that a dealer got a call from one of those artists who had seen his teapots underpriced on the dealer’s website.  He told him, directly, that certain old boys had paid much higher prices and that he would be in real trouble, if they saw those prices.  That is in addition to buying by uneducated nouveau riche buyers to whom the higher the price, the better, so that =y can brag to their friends.

The lack of art appreciation has pushed down prices of innovative and artists teapot art, while the guanxi-affect has caused overpricing of the other segment.  A collateral affect that we have observed, in the teapot market, is that many other artists are trying to promote their names and connections, which has also lead many teapot dealers to try to raise their general prices, and the market is very distorted, as a result.

At Leona Craig, we have endeavored to seek out creative artistic teapot art and artists, which is an undervalued segment of the market.  We have considered many others for inclusion in our gallery.  Indeed, we continue to search for good art and artists, and we failed, so far, to find reasonable and talented artists who make some of the more classical shapes of teapots (we have found a few who are unreasonable).  We also found other artistic teapots that were over priced.  For example, we found a lovely lotus pad with frogs theme, which has been around for at least a century, but this one showed creativity with one a frog peaking out from in between the top and bottom leaves.  One artist, who makes it and who is part of a teapot making dynasty family, was asking for $5,000, while another, whose mentor sells unmemorable teapots for tens of thousands of dollars, was asking almost $1,000; we felt that both prices, relative to the market, were too high.

All in all, we have searched though thousands of shops and dealers and on-line, and we have made good progress, in the past year.  We now have about seventy different works of teapot art, included in the Leona Craig Gallery, from about a dozen different artists, six whom we have chosen to represent with larger collections of their works.  Lu Wen Xia makes beautiful detailed original teapot art, mostly in the wood and bamboo themes.  Her creations have the look and of natural wood and bamboo, and her work has been collected by the Chinese ministry of culture and other branches of the government, as well as collectors, in China, Hong Kong, Singapore, Europe and the U.S.  Zhu Qiu has chosen to do artistic teapots, even though he knows what the Chinese markets are like, but he has the soul of an artist.  Nevertheless, he has managed to win gold prizes with his work in shows, in East Asian countries.  He has devoted much study to the wood themes, and he manages to make realistic, colorful, and beautifully-textured wood theme teapots, as well as some simpler traditional teapots.  His brother also borrowed an original silkworm teapot by Qing Dynasty artist, Chen Ming Yuan, and Zhu has produced a beautiful and exacting copy of that.  He has also done a number of creative and artistic teapots in other nature themes.  Qian Jian Sheng is a nephew of Jiang Rong who has learned teapot art from his aunt as well as other famous mentors.  His work includes creative and beautiful variations of some classic teapot themes, and coming from a teapot dynasty family, he has access to the very best clay.  Jiang Mei Zhen, whether or not she is related to the late Jiang Rong, makes really beautiful teapots in lotus and leaf themes, in beautiful green clay.  She also makes a silkworm on mulberry leaves teapot after a design by early 20^th century teapot artist, Xie Man Lun, which is quite fun and lovely teapot art.  Our artist Chen Dong Zhu concentrates on variations on a tree stump theme with various creatures on the stump and a thin outer layer of rough brown clay over yellow base clay to give the appearance of bark pealing off a dying tree stump.   The final artist that we have, so far, featured in our gallery is Sun Jin Li, who has created a number of teapots in the shapes of animals and monsters; the work is very creative, and is even already being copied by other artists.  We believe that the art that we are including in our gallery is fine art at reasonable prices.  In fact, when we look at the prices of the same teapot art at other dealers, both on and off line, we find that we offer the same teapot art at prices, sometime, one-fifth other prices.

You can see the collection of Yixing zisha teapot art that we have put together, thus far, at Leona Craig Yixing Zisha Art Gallery on-line at http://www.leonacraig.com/Chinese_Teapots_Intro.htm.  We hope that you appreciate our efforts and that you like the look of our teapot art.  We will continue to search the markets for more teapot art and artists who make beautiful art that also represnts good investment value, so, check back with the gallery from time to time.  You can read more of our analysis of the teapot art market, other Chinese art markets, and other topics in investment and finance on our In-Country Analysis Page at  .

You can also read our other blogs:
http://blog.incountry-china.com - for information about life, culture, language, customs, amd travel, in China.
http://blog.redhillcapitalco.com - for comments and analysis of general finance and investment
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