How China Became the Top Player in the Art Auction Market

The auction world welcomes a new top dog and power player! According to Artprice’s most recent report, China has taken top spot from the U.S. for the first time in five years.

Auction sales in China are up 18% in the first half of 2016, according to Artprice. The $570 million increase in sales gives China the largest share of the auction market at 35.5%. The United States follows at 26.8% of the art auction market.

Zhang Daqian. Peach Blossom Spring. 1982. $34.7 Million Realised. 

China’s economic rise in the art world is coupled with record-breaking results from Chinese artists. Zhang Daqian’s Peach Blossom Spring sold for $34.7 million—more than four times its high estimate—at Sotheby’s in April. Along with Zhang, three other Chinese artists are in the top 10 of global results so far this year: Wu Guanzhong, Fu Baoshi, and Qi Baishi. All in all, Asian artists make up nearly 30% of the top 50 results, according to the report.

The Meiyintang 'Chicken Cup'. 1465-87. $36.05 Million Realised. 

China’s jump appears all the more noteworthy given that it is occurring while the art market as a whole experiences a significant correction, and as China’s general market has seen its health waver. Growth in the Chinese art market has bolstered the bottom lines of Western auction houses (via their auction blocks in Hong Kong) and does help support against the global art market slide. Sotheby’s, Christie’s, Poly Auction, and China Guardian saw cumulative increases in the total results of their auctions held in Asia during the first half of this year. Their combined auction totals grew to $2.3 billion from $1.97 billion during the same period in 2015, according to Artprice data.

Pan Tianshou. Pine. 1964. $14.6 Million Realised. 

Much hay has been made about the connection between negative bond yields in Europe and growing interest in art as an investment. But the current rise in sales in China is likely also connected to the fact that mainland wealth in the country is pouring offshore in search of safe financial harbors. Many in China are still jittery after contractions in the value of the renminbi (RMB) and Chinese equity markets last August.

Though individuals are officially limited to converting $50,000 into foreign currency each year, there are numerous ways to circumvent the cap. Things have gotten so serious that officials in the country have introduced controls to limit the purchase of traditional financial products—like insurance—in Hong Kong by mainland buyers through third party payment services.

Amedeo Modigliani. Nu Couché. 1917-18. Taxi Driver-turned-Billionaire, Liu Yiqian purchases the masterpiece for $170.4 Million.

In a recent Financial Times piece exploring currency flight broadly, Kevin Lai—chief economist of Asia ex-Japan at Daiwa Capital Markets—said, “the bottom line is that there is huge pressure from individuals to bring money out of China. They are always finding new ways of getting around the regulation.” The increase in art sales is, of course, due to a confluence of factors. But it seems likely that some mainland billionaires looking to get money offshore by purchasing alternative assets in Hong Kong would also look to art as a vehicle in that effort.

A slew of major sales to a small group of individuals can drastically increase the size of a market—just as the absence of big-ticket items is hurting auction totals in the West. According to a Financial Times survey, “56.8 percent of Chinese outbound investors believe they will allocate more of their liquid wealth overseas in the coming two years.” However, it should be said that those in China using art as a harbor are in the vast minority.

Shellie Zhang. Self Portrait from the series, 'Made in China'. Photography. 2013. Edition of 30. Prints starting at $150. 

The general desire to get cash out of the country, however, means the incentive for mainland buyers to purchase art exists—especially due to the uncertainty of the currency combined with lower profitability in stocks and bonds. Though a smaller percentage, Chinese buyers looking at art as part of a diverse offshore portfolio could be the source of the unexpected increase, simply because of the scale of wealth leaving the mainland.

One final item of note: Hong Kong alone is keeping the Chinese art market in the black. According to the Artprice report, while Hong Kong's market growth is robust, the market on the mainland saw 22% fewer lots sold from last year. The more worrying figure from the mainland is an incredibly high 64% unsold rate. The Western art market may be correcting, but the unsold rate is still a healthy 28%. According to the report, anything north of 35% indicates “meltdown territory.” Given that mainland China’s unsold rate is 29% into the danger zone, the Chinese art market’s current prospects could well rest in money continuing to pour into Hong Kong salerooms.

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The information in this article was obtained from the following source: Isaac Kaplan for Artsy.


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