Exposing the Chinese Art Market With 6 Questions Pt. 1 – artmarketblog.com

china art auction Exposing the Chinese Art Market With 6 Questions Pt. 1   artmarketblog.comQ1. The records from the recent Christie’s fine modern paintings sale (31 May), along with records from China Guardian Auctions Co. from the 2009 Autumn sale onwards, show that auction house estimates have become little more than conventional additions rather than indicative price guides. Your thoughts? Are price estimates for works being suppressed and, if so, why do you think this is the case?

Nic’s Answer: Estimates are a tricky affair.  An estimate that is too high will put buyers off and an estimate that is too low will cause buyers to wonder why the estimate is so low.  Even though an estimate is nothing more than an educated guess as to what the object might be likely to fetch, the psychology is similar to that of retail pricing.  If a customer goes into a shop and the price appears too high for a product they will likely look for a different product that offers better value for money or look elsewhere for a better price for that product.  If the price is too low the customer will likely become suspicious as to why the price is so low and will either question the quality and condition of the object to ensure it is worth buying before they make the purchase, or will avoid the product all together.

Although the estimate will often have very little or no bearing on the price that people can bid and subsequently purchase the work for (ie. bidding much lower than estimate and purchasing the object for much lower than the estimate), the psychology of the art auction is such that the estimate is often viewed as much more of an indicator of value than it really is.  The problem this creates is that auction houses are therefore able to use the estimate as a powerful and influential marketing tool that has the potential to seriously affect the perception that potential bidders have of a particular work of art and influence the way they bid.

One of the main problems with the explosion in demand for the work of many contemporary, modern and historical Chinese artists is that interest (or the level of interest) in their work from a market perspective is relatively new and without precedent.  What this means is that there is very little or no past data (ie. gallery prices, auction prices) to use as a basis for the creation of estimates for many of the artists whose work is appearing at auction.  Looking at the work of ZHANG DAQIAN, for example, artprice.com shows that 3578 of his watercolour paintings have been auctioned since 1991 with almost half of those works appearing at auction since the beginning of 2009.  That means that the same number of works by ZHANG DAQIAN were auctioned in the last two and half years as were auctioned in the 18 years prior to 2009.  Such an unprecedented level of demand generated in such a short time period is bound to cause problems for the auction market of an artist’s work.  Considering that some contemporary artists who have no auction track record at all are achieving prices at auction that are usually the sole domain of famous master artists, the inaccuracy of auction estimates is hardly surprising.

It is always in the best interest of auction houses to keep estimates lower rather than higher to encourage competition and bidding but I do not think that auction estimates are being suppressed any more than they usually are.  At the end of the day auction houses are businesses whose primary goal is to make money and as such they really have no obligation to present accurate estimates.  The use of auction estimates as a marketing tool is something that has been going on for a long time and is perhaps just more apparent due to the media scrutiny of the prices being paid for works of art by Chinese artists.

Q2. (A tricky one..) Are the works themselves worth the prices being paid?

Nic’s Answer: The true “value” of an artist’s work is something that is developed over a long period of time and is primarily a reflection of – among other things – their cultural and art historical importance, the influence that they have had on their chosen genre and medium, and the results of critical review.  As an artist’s career progresses through the various stages of development the dollar value of their work also develops and progresses.  Prior to appearing at auction, artists usually sell their work through private commercial galleries which helps create a stable and justifiable price point for their work.  One of the problems facing the Chinese art market is that China has an underdeveloped private gallery system that cannot support the number of contemporary artists being thrust into the limelight at such a rapid rate.  Many Chinese contemporary artists are skipping the private gallery stage of their career and going straight to auction which makes the value of the work much more unstable and unjustifiable over the long term.

What makes valuing works of art so difficult is that there are two types of value that are especially relevant to the Chinese art market.  The first value is the true artistic value of the work of art and the second value is the prestige and social status that comes with owning a piece of expensive fine art. Are the works of art being sold worth what people are paying for them from a market/artistic value?  The answer would have to be no for two reasons, the first of which is that many Chinese buyers are being driven by a desire for social status and prestige.  Secondly, many of the artists whose prices are being driven to extreme heights do not have the career credentials to justify the prices being paid.  Are the works of art being sold worth what people are paying for them from a social status/prestige perspective?  The answer to the question would depend on what effect the work of art has had on the social status and prestige afforded to the owner.  Only the owner can answer this question as there is no way of qualifying or quantifying the value of social status and prestige.

Because the value of social status and prestige cannot be qualified or quantified, and because such value is in no way inherently attached to the work of art, the likelihood of the massive prices being paid for works of art by Chinese artists remaining at the level they are currently at is very low.

To be continued…….

**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.comt Exposing the Chinese Art Market With 6 Questions Pt. 1   artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.

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  • http://101exhibit.com John Monteiro

    Those of us that have toiled at our profession for many years and have not received the worldly attention we deserve, feel slighted to say the least. Now comes the unknown Chinese artist, flooding the market with works that only Marvel Comics would relish; receiving hugh prices and recognition with absolutely no track record. This is the typical gallery sham; building someone’s reputation in a very short period of time, with only their word to go by. Let’s send all of this “cheap, junk” back to where it came from. It’s almost like sending our jobs overseas and having it manufactured for pennies and then importing it back to be sold at astronomical prices. It’s all a game and the wealthy win again.

  • http://www.beijing-tomorrow.com/ Andrew Werby

    The comments Nick makes about the sudden popularity and price gains for these previously obscure Chinese artists could just as easily have been applied to the Impressionists, when they first burst upon the French art scene. At the time, the art establishment had no way to value this art by traditional metrics – it was new, it hadn’t sold much previously, and the people who did purchase it were not the established collectors who patronized the Academy but the nouveau-riche, or others who wanted to make a statement about their advanced views in art.

    Where were the “career credentials” of these upstart artists? There certainly wasn’t a great deal of gallery support for these “refusees” – they were forced to create their own exhibition opportunities outside existing distribution channels. What they did right was to enlist some powerful writers (like Zola) to champion their cause, and stir up some controversy, in which they could stand for a new approach to art and a breath of fresh air. This struck a chord with emerging French and international tastemakers, and the rest is history. Those, and there were plenty, who felt that they didn’t have the proper “market/artistic” credentials to achieve lasting value were left in their dust, wondering why the ways they’d developed to calculate the value of artworks didn’t seem to apply any more. Since then, art-market conservatives have had to take a more cautious tone when pronouncing on the ultimate value of any new art – until recently, that is…

    It’s not surprising that a newly affluent Chinese art-buying public should want to boost their “status/prestige” by purchasing some home-grown contemporary art that pleases them. I don’t see how this is so much different from the motivations of art buyers in the West, except for their apparent greater confidence in their own tastes. As long as the affluent class of Chinese keeps growing as it has been, I don’t see this overall trend coming to an abrupt end anytime soon, although it’s certainly possible that individual artists will go in or out of fashion, exactly as happens in the West.

    Andrew Werby

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  • Tim

    Track record? I like genuine artistic merit for a measure. Evaluating the quality of work based on a CV is BS.

    But whatever. It’s a gamble, let the foolish chase art fashion, let them lose their money on the highly speculative stock.

    I’ll buy what’s good.

  • ugage

    How much Chinese art sold at auctions in China is actually being paid for? My experience is not. My auctioneer ramped the market by selling at an inflated price to a buyer who never paid. This buyer — described as a local buyer — may just have been a stooge placed in the auction room to bid a high price, or may not even have existed. This experience came as something of a shock to me.

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