There has been much hoopla, in the news, about the Chinese art sales, for the last several months.  It began with the sale of a Chinese vase that had expected to achieve an auction price of several thousand dollars, but which brought tens of millions at a small auction house in England.  A similar event occurred at another auction house in the early spring.  Other hardy sales continued, in modern paintings.  To top it off, Artprice awarded China the number one spot in the art markets.  Only days before, the British Art Market Federation had given China, only second place.

By the time I was on Beijing International Radio, in the beginning of April, the true signs were beginning to show.  First of all, the buyer had not yet paid on that vase from the beginning of November.  One could look further back to the YSL sale of Zodiac Fountain heads, a year or so earlier.  Indeed, by the time that the second vase sold, in March, for an exorbitant price versus another pre-sale estimate in the thousands, collectors from all over the world were asking what I thought was going on with those mysterious sales.  Many have their own theories, which involve one sort of "funny business" or another.  By early April, because of this issue of non-payment, Sotheby's Hong Kong required $8 million deposits to bid on its collection of ceramics from a well-known collection.

Well, lets start with the claim that China is now the number one art market.  The survey includes only major auction houses, so, for one thing, it also does not include the gallery, retail market, which is quite large in Europe and the U.S.  Moreover, in the U.S., for example, from personal experience, I know that there are many small, weekly auctions, and there are also many flea markets where one can browse and even make good finds.  While I have heard that there are flea markets, in Beijing, there are none here, in Guangzhou, that I have ever seen or heard of.  The gallery market is also way behind Europe and the U.S.  Moreover, form personal experience, also, I know that auction records, in China, are not always completely accurate.  For example, I have seen a number of sales in the auction records, yet I know that the items are still at the same dealer's galleries that they were at before the auction.  As the head of Bejing's Christie's affiliate who as part of the interview on Beijing Radio pointed out, often an auction will ask an owner of an important piece to put it into auction.  There after, bidding will go on to push the price to an extreme level, and at the end, the item is returned to the original collector, while the record shows that it has been sold at a very high price.  I know of many other things that go on at the local auctions, all of which are not exactly above board.  Another recent article in the London Telegraph tells of how bribes are often paid through art auctions.  In their scenario the bribee is given a piece of crappy ceramic art, and the briber bids up the price to Y50,000 or more.  Given all of those things, first, we cannot trust the results of auctions, in China, and, second, if you included the total market for art and antiques, China would fall way short of other markets in the West.

Internally, I have not noticed that artists are asking for more money for their works, and people are still trying to beat me down on price, even though we price things reasonably.  While prices have firmed over the past year or so that is only natural, given that there was a boom and bust, in the Chinese art market around 2008.  The only exception is in Yixing teapot art.  Over the past 6 months or so, some teapot artists have raised their prices to us by as much as 100%.  We already have written articles about what we consider to be over-pricing in that market, and our response to most of those increases has been to drop the artists from our list.

As an arbitrageur, I know that what one reads in the newspaper is not always true, so, I am always difficult to convince.  In the case of the hype in the Chinese art markets, I believe that it is just that: hype.  Guy Ullens who has been collecting Chinese art since the 1960's and who was trying to have an art museum in Beijing, recently sold his collection, which is certainly not a positive sign for the markets.  I also believe that it is not good for markets to have so much misinformation, and it is dangerous to have amateurs in markets.  In the past year or so, many art funds have cropped up, which makes art more about money than about art.  Even art stock markets have begun, including one in Tianjin, China, on which trading was halted several weeks back because the price of an artist's painting's shares went to the equivalent of 18 times his last auction market price.  As someone who has been observing the evolution of many markets over the last 3 to 4 decades, I consider those things to be bad for the art market.

Bubbles in markets are always caused when the general publish rushes in after they have read about all the fuss in a market.  That happened in stocks, in the U.S., in the late 1990's when everyone and his brother became expert stock traders, able to circumvent brokers and investment professionals and trade stocks on-line, and they bid the NASDAQ up to 5000; the eventual crash put it back at around 1000, down 80%.  The same has recently happened in the Chinese stock market, and some believe that it is happening, still, in the Chinese real estate market.  It also happened in my original market, merger arbitrage, in the 1990's, when many non-experts entered the market and totally reeked havoc on returns.  A big problem, in the Chinese art market, beyond what we have already mentioned, is that, first, there is not a culture of home decoration, in place, in China, and, second, too many people with no expertise have gotten into the market because they have heard it can make money.  Chinese with a lot of money, on the other hand, tend to show it off, and thinking of reasonable prices often does not enter the equation.  Couple that with all of the taunting by the press as to why the Chinese, themselves, cannot afford their own art.  Face is everything, and only the facial parts of many things, therefore, are important.  That can account, at least partly, for both over-paying and fails-to-pay.  It has been going on in the Yixing teapot art market for quite some time.  Since Yixing teapots are necessarily Chinese, they have been marketed as one true pure form of Chinese art, and extremely high prices are paid for teapots by many famous artists.  When prices get beyond $20,000 for something of which many copies have been made and given our acquaintance with other more reasonably priced artists who also make very few copies of top notch art, we feel that the risks are too high.  Another questionable recent sale was a teapot by Gu Jing Zhou, selling for several million dollars.  Be that as it may, we have been careful to avoid teapot art the we feel is overpriced, relative to overall art markets, and we have been dealing in only those which we feel ar reasonably priced. 

Thus, while the Chinese art markets have their problems, most of the market is still relatively calm and, in fact, underdeveloped, in reality.  As a result, we believe that there are still many opportunities, especially in the mid-range and emreging parts of the market.  If you're invested in the high end, you might want to consider lightening up and putting your money to work in less visible segments of the market.

We have included links to many of the recent news articles, below.

The Thing about all the Fun at the Auction...
Tianjin Exchange Hypes Art for Money's Sake
Runaway Chinese Art Stock Exchange Halts trading on Top Painting after Price Surge
Major Chinese Ceramics Sale Fails to Live Up to Hype
Auction Clampdown as Non-payers Hurt $120 Billion Asia Market
Chinese Art Market Skyrockets, but do Buyers Actually Pay?
Chinese Vase Frenzy: Bribery and the Auction house 
Flop art: Warhol dream fund turns to nightmare
Russia launches $470 million exchange-traded art fund
2011-04-08 China's Booming Art Market: Beijing International Radio
Artprice: the 2010 Art Market Annual Report - China Winner of the Past Decade
China’s $8.3 Billion Art Market Overtakes U.K., Report Says
Chinese Buying Spree, Record Painting boost $54.9 Million Hong Kong Sale
For Guy Ullens, the dream of a Chinese art museum "is over" 
Art Funds Return

You can read more articles on the Art News page of our website.

Craig Mattoli, Guangzhou, China: 86 136 3241 0877
Website: http://www.leonacraig.com 

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