Exposing the Chinese Art Market With 6 Questions Pt. 3 – artmarketblog.com

See part 1 here:

http://www.artmarketblog.com/2011/07/01/exposing-the-chinese-art-market-with-6-questions-pt-1-artmarketblog-com/

See part 2 here:

http://www.artmarketblog.com/2011/07/11/exposing-the-chinese-art-market-with-6-questions-pt-2-%E2%80%93-artmarketblog-com/

materialists art market1 300x224 Exposing the Chinese Art Market With 6 Questions Pt. 3 – artmarketblog.com5. You’ve drawn comparisons between the present market climate, and the lead up to the Japanese crash in 1990. What are your fears for the Chinese market? Is a crash imminent and what are the likely results? (And just because the media loves a bit of sensation) When do you see this happening?

The biggest problem with the Chinese art market is that there is very little evidence that the prices being paid for contemporary, modern and historical art are sustainable and justifiable.  In order for prices to merely stagnate – as opposed to crash – when the wealth driving the Chinese art price bubble dries up (as it surely will), the current prices being paid for Chinese art, and for western art by Chinese buyers, would have to be justifiable in a post-boom climate.  This would mean that the prices being paid at the moment would have to correlate with the perceived art historical importance, the level and nature of critical recognition, the aesthetic appeal , the rarity of the work of art – in other words, all the factors and characteristics of the works of art that can be rated, graded, compared and contrasted.

There is no doubt that the market for Chinese art and the Chinese art market are in serious trouble.  The rate at which the prices for Chinese are rising, and the rate of growth that the Chinese art market is experiencing, cannot continue for much longer.   I do, however, think it would be foolish to underestimate the level of wealth coming out of China and the momentum of the Chinese economy.  Whereas the Japanese were focussed very much on the work of Western master artists – a market of limited supply – the Chinese are showing much more interest in the work of their own contemporary artists of which there is a virtually unlimited supply.  As long as the money continues to flow, there will continue to be emerging Chinese contemporary artists ready and waiting to take the place of those artists who perhaps lose their appeal. What this means is that the current Chinese art market boom theoretically has a longer shelf life than the Japanese boom.  This also means that the most likely reason for a price contraction will be an economic event such as the bursting of the real estate bubble.

In my opinion the most damning evidence of a bleak future for the Chinese art market is the direction that China’s property market is heading.  What China is doing is boosting their economy by building massive cities in anticipation of the massive rise in the number of Chinese people who can afford to purchase their own home that the Chinese government thinks will take place.  The problem is that many of these cities remain empty long after construction was completed and offer no signs of filling up with people.   Commenting on China’s property market, a recent article by Bloomberg stated that: “China’s property market may be heading into a bubble as the economy’s reliance on real estate reaches a level close to the housing peaks in the U.S. and Japan, according to Citigroup Inc.”.  This statistic from Bloomberg is particularly relevant because it compares China’s property market boom to the Japanese property market peak – the collapse of which caused the art market collapse of the early 90′s.  With so much money being invested in property and being made from China’s property boom it is highly likely that a significant proportion of the money being spent by the Chinese on antiques and fine art comes from the property boom.  It is therefore also highly likely that the ability to pay any debt that Chinese buyers are racking up to pay for their trinkets is reliant on the continued positive progression of China’s property boom.

According to an article in the Sydney Morning Herald by Malcolm Turnbull, “HSBC recently calculated that the total value of China’s residential property market was now 3.27 times GDP, which is nearly twice the peak reached before the subprime crisis in the US and approaching the levels in Japan during its 1980s property bubble.” (Read more: http://www.smh.com.au/opinion/politics/chinese-debt-binge-is-fuelling-a-dangerous-property-bubble-20100615-yd1a.html#ixzz1OS5FPLFB)

Many of the top Japanese investors leading up to the Japanese economic crisis in 1990 ended up with the largest amount of debt as a result of the crisis, and for those that had used their wealth to purchase fine art this meant that they had to sell their assets including the fine art that they had purchased to pay back their debts.  As a result, a wave of “bad-debt art” was thrown back into the market and sold at prices well below what the Japanese had paid for them.   Because the Chinese have speculated so much on the work of young emerging artists, an influx of “bad-debt” contemporary Chinese art back onto the market would be catastrophic for the reputation and future value of these artists.  This is, however, something that is very likely to happen in the near future.

When it comes to predicting the end of the Chinese art price bubble, I would suggest that the current rate of progression cannot last longer than another eighteen months – in other words, until the end of 2012.  The most likely cause of the end of the Chinese art price bubble is the bursting of the Chinese real estate bubble which people are predicting will end in the next twelve to eighteen months.  If the real-estate bubble doesn’t cause the bust, a massive increase in negative art market sentiment surrounding the work of Chinese artists and the Chinese art market Chinese resulting from an awareness by Chinese buyers that they paid too much for many contemporary works of art  – an awareness caused by problems getting what they paid for works of art when they try to resell them at auction auction to fund new purchases.  Either way, I give the art price bubble no more than eighteen months.

6. What has been the effect of the Chinese art boom in recent years on the Australian market (contemporary indigenous/non-indigenous art)?

One of the problems that the Chinese art boom has created for the Australian art market is the increased level of faked and forged Aboriginal artworks that are causing problems for the entire Aboriginal art market.  Copies of genuine Aboriginal artworks and outright fakes are being made in China and then passed off as genuine items.

image: Materialist’s by Wang Guangyi

**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. 3 – 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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