Exposing the Chinese Art Market with Six Questions (All 6) – artmarketblog.com
1. 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?
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.
2. (A tricky one..) Are the works themselves worth the prices being paid?
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.
3. What specific indicators would suggest a price bubble for Chinese art, and is this “bubble” a general feature across all art sectors in China, or specific to contemporary art since the 1990s, for example?
The characteristics of an art price bubble are an unjustifiable sudden and rapid increase in the prices being paid for works of art combined with an increase in the number of works of art being sold on either a market-wide scale or within a particular sector of the art market. Given The rapid rate at which the unprecedented yet unjustifiable rise in prices for Chinese art is progressing, combined with the large increase in the sheer volume of works of art by Chinese artists being sold at auction, I think that there can be no doubt that this is what is currently happening and that all indications point to a price bubble for Chinese art.
Without doubt the price bubble for Chinese art extends across all categories of Chinese art from 14th century Chinese scroll paintings to works by emerging Chinese contemporary artists. The bubble is, however, most evident in the contemporary and modern sectors.
4. There’s evidence to show that gallerists and artists in China pay for positive critical reviews. But Chinese contemporary artists generally lack the level of critical attention given by critics, historians and galleries in comparison to Western artists. Is the lack of criticality a major contributor to the volatility of the contemporary market? What other factors are there?
The lack of critical review is one of the main problems that the Chinese contemporary art market is facing. Without adequate critical review, buyers do not have the information that they need to make justifiable and discerning decisions when buying works of art. Another factor that causes contemporary art price volatility is the rate at which the careers of young emerging artists are progressing. Once finishing art school, young artists usually go through a process of development and progression that includes several crucial steps. One of those crucial steps is exposure to critical review; another step is establishing a primary market through private gallery representation.
Without the private gallery step in the process of natural progression, young artists end up being thrust into the limelight ill-prepared and without having been through that crucial process of critical review that the private gallery system is a major part of. It is that private gallery system that would usually separate the true stars from the posers and direct the marketplace towards the true stars. Artists whose work is taken directly from the art school to the auction house are essentially being thrust into a position of authority and responsibility without the proper credentials.
The long term value of an artist’s work depends on the level of support and patronage that they receive from the cultural and private gallery sectors. It is pretty much inevitable that the super-heated Chinese art market will begin to cool at some point in the near future which means that buyers will have to begin to justify their purchases and the amount of money they are spending on fine art. If an artist has not been through the traditional route of progression, and does not have the support of a strong private gallery sector, it is unlikely that they would be able to survive the justification process.
An influx of wealthy yet impressionable and uneducated buyers, combined with an art market littered with strategically placed artworks by unseasoned young contemporary artists whose work is seen as being “trendy”, is a recipe for disaster.
5. 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.
**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.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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