How China Went from Art-Market Afterthought to World Auction Superpower
The year 2011 delivered three seemingly incredible statistics that confirmed the status of China as a major power in the global art world. In March, Artprice, the online clearing-house for art market data, declared China the world’s largest art market based on the total value of fine art auction sales in 2010. Three months later, France’s auction regulator, the Conseil des Ventes, released its annual report on the world’s top auction houses and included no fewer than 5 from China in its top 10. Moreover, 10 Chinese houses made the Conseil’s top 20. Two of them, Poly International Auction and its archrival, China Guardian, took third and fourth places, respectively. The final—and to many observers the most shocking—statistic came at year’s end, when Artprice crunched the numbers for its annual list of the world’s top artists at auction and found that Picasso, who had long reigned supreme, had been toppled by two Chinese modern masters who were largely unknown in the West: Zhang Daqian (1899–1983) and Qi Baishi (1864–1957).
More than the others, that last result signaled the scale of what has been happening in the auction rooms of Asia. New tastes, new names, and new modes of operating are in play, and no one seriously interested in the art market can afford to ignore the scene any longer. A glance at the numbers tells us that for now, the Asia story is really the story of China. In 2011, China—which includes Hong Kong—accounted for 41.4 percent of the world auction market, while the remainder of Asia added only another 1.6 percent to that total. Particularly noteworthy is the degree to which the Asian Market is driven by auctions. In the United States and Europe, galleries and dealers control a considerable slice of the action, but collectors in Asia seem to prefer to conduct their transactions through an auction house. “People are confident in the auction room,” observes Colin Sheaf, the chairman of Bonhams Asia. “It provides a very public forum, giving you confidence about not just the authenticity of what you are buying but also the level at which you are buying.”
Unsurprisingly, Christie’s and Sotheby’s were instrumental in kick-starting the entire regional art market. According to Sheaf, “That the Asian market is now dominated by auction buying and selling is a direct result of Sotheby’s and Christie’s enjoining their global rivalry in the Hong Kong forum back in 1986." A great deal of the annual Asian art market action now centers on the spring and fall seasons in Hong Kong. Christie’s and Sotheby’s hold the lead, but an increasing number of houses from elsewhere in Asia shadow the major sales, snapping up business from local collectors. Some of these smaller houses do more business in Hong Kong than they do at home. Last year Ravenel, Taiwan’s leading auction house, moved six of its top lots in Hong Kong, including Sanyu’s Five Nudes, from the 1950s, which sold in May for $HK128.32 million ($16,493,573), setting a world record for a Chinese oil painting.
Hong Kong is the world’s third-largest auction market after New York and London. With rock-bottom taxes, zero tariffs on art and most other goods, a well-regarded legal system, and unmatched infrastructure, from banking to transport to communications, the city is a magnet for buyers from across the region. The authorities have astutely smoothed out wrinkles in the commercial environment, scrapping wine tariffs in 2008 to propel the city to global leadership in the wine auction market. Jewelry is the other auction sector where Hong Kong is now in contention for the top spot.
In 1973 Sotheby’s became the first house to hold auctions in Hong Kong. It would be a decade before Christie’s arrived, opening an office in 1984 and holding its first sales two years later. “Our first auction in Hong Kong realized $1.8 million with two sales, and we were terribly pleased,” recalls François Curiel, the head of Christie’s Asia. “Fast-forward to 2011: We sold more than $904 million in Asia with 27 auctions. So within 25 years, we increased our turnover by a factor of more than 500.” The truly telling figure is the contribution of Asia to the house’s global bottom line. Its pioneering 1986 Hong Kong auction added just 0.3 percent to the house’s sales for the year. In 2011 Christie’s drew as much as 16 percent of its total global take of $5.7 billion from its Hong Kong salesroom.
Last year Sotheby’s did $1 billion of business in Hong Kong, scoring a win for the year over its old rival. Sotheby’s also attracted most of the regional limelight with a glamorous series of sales from prestige collections. These set new records and staked a strong claim to three key areas of the Hong Kong market: Chinese contemporary, Chinese ceramics, and so-called fine Chinese painting—traditional ink-on-paper works created in the modern period.
Sotheby’s sellout auction of the Ullens Collection in April 2011 set a new world record for Chinese contemporary art when Zhang Xiaogang’s oil-on-canvas triptych Forever Lasting Love, 1988, went for a total of $10 million. Equally important was the message that the sale sent about the importance of Hong Kong to the market for Chinese contemporary art, a sector that just five years ago was centered in New York and London.
The market for Chinese porcelain has shown comparable strength. In 2011 Sotheby’s secured the right to sell the fabled Meiyintang Collection of Chinese porcelain, assembled over five decades by two Swiss brothers. Items that once might have been consigned in London or New York became headliners in Hong Kong, with the star lot, a meiping vase from the Yongle imperial period of the early 15th century, selling for $HK168.7 million ($21.6 million), double the previous record for Ming porcelain.
The final record-making category at Sotheby’s Hong Kong last year was in fine Chinese painting. Although not as widely written about in the West as contemporary art and porcelain, it is the heart of the Chinese art market. Once the province of a gentlemen’s club of wealthy Hong Kong and Taiwan connoisseurs, it has been supercharged since new money from the mainland started pouring in a few years ago. In 2011 this sector accounted for more than a quarter of sales at Sotheby’s Hong Kong, totaling more than $265 million. This has planted names like Fu Baoshi, Qi Baishi, Wu Guanzhong, Xu Beihong, and Zhang Daqian on global lists of top artists at auction. The record price for Zhang Daqian was set at Sotheby’s in 2011 when Lotus and Mandarin Ducks, 1947, fetched $HK 191 million ($24.6 million).
Nevertheless, the highest price for a Chinese painting was paid not in Hong Kong but on the mainland, where QiBaishi’s A long Life, A Peaceful World, 1946, sold in May 2011 for CNY425.5 million ($65 million) at Guardian, in Beijing. The record indicates the serious challenge from the mainland houses. Hong Kong remains powerful: Together Christie’s and Sotheby’s realized almost $2 billion there last year, and that does not include figures from the raft of smaller houses from Japan, Korea, Taiwan, and Singapore that also did good business in the Harbor City. But Hong Kong is increasingly being tested by the freewheeling auction scene on the main-land, where thousands of houses, not just a handful, are hungry for a piece of the action.
On the Mainland
The dynamics of the Chinese mainland auction scene would be familiar to any experienced observer of China’s commercial sector in general. A vigorous and wildly profitable business is dominated by two commercial giants, the Beijing-based Guardian and Poly, the former operating on the private business model of Christie’s and Sotheby’s, the latter a classic practitioner of Chinese state capitalism that can draw on the massive resources of a government-owned parent group that enjoys powerful connections. The total annual sales of the Chinese “big two” are more than double those of their nearest rivals, Beijing Hanhai and Beijing Council, whose results are nevertheless sufficiently solid to earn them a place in the Conseil des Ventes top 10. Beyond Beijing, some smaller, serious houses have recently become established in Shanghai and Hangzhou. Farther afield the market is a barely regulated free-for-all, rife with tales of fakery and sharp practice.
Guardian is the mainland’s leading fine-art auction house by revenue, having wrested that position from Poly last year with fine-art sales of $901.8 million, just ahead of its competitor’s $901.6 million. The house was cofounded in 1993 by Wang Yannan, the daughter of Zhao Ziyang, former general secretary of the Chinese Communist Party, and Chen Dongsheng. A widely respected figure, Wang still heads Guardian. In 1993 the rules of the post Mao economy were being written, and no one was even sure if selling art and cultural relics at auction was legal. Recalling those days, Wang laughs and quotes a Chinese adage that the ignorant have no fear. “The auctions were an immediate success,” she says, “and much beyond our imagination. We were discovering a new market, a younger generation who had never owned an artwork. They couldn’t believe that you could actually get such things with money.”
Guardian thrived by tapping into this yearning to own a piece of China’s cultural heritage. Using Christie’s and Sotheby’s as models, the house built a reputation for reliability and ethical behavior. Having claimed 7.8 percent of the world’s auction sales revenue in 2011, Guardian is enjoying considerable success.
Poly (or, more formally, the Beijing Poly International Auction Company), a relative newcomer, was founded in 2005 and has followed a markedly different path in its rapid rise to the top of the Chinese auction market. As a state-owned company with extensive resources, Poly has aggressively pursued market share, offering clients liberal financing as well as lending against the value of their collections, holding them as collateral, often to be consigned to sale later.
Poly is an arm of the Poly Culture Group, which in turn is a subsidiary of the vast China Poly Group Corporation, one of the most powerful state-owned enterprises to have grown out of China’s policy of encouraging government bodies to trade for profit. Poly was originally an offshoot of the People’s Liberation Army, and defense-related industries remain its commercial backbone. The Poly Culture Group draws on a huge network of influence and connections and is an avid buyer on its own behalf, displaying its art collection in the Poly Museum in Beijing. The group has spearheaded a campaign to repatriate cultural treasures taken from China, particularly works looted from Beijing’s Old Summer Palace by French and British troops in 1860.
Poly experienced stunning success at its debut auction, taking in CNY60 million (about $70 million) in the fall of 2005. Its growth since then has been phenomenal, and the house has brought a number of prestige collections and lots to auction. When Baron Guy Ullens consigned a scroll by the Song Dynasty Emperor Huizong to raise money for his Ullens Center for Contemporary Art in Beijing in 2009, he chose Poly, in a shrewd political move. Both Poly and Guardian have conducted appraisal weekends in various cities in the West, but they are now aiming to enhance their ability to compete for consignments by opening permanent offices. Guardian inaugurated its premises on Park Avenue last December, and Poly’s New York office opened in March. The two are considering U.K. locations as well.
The Wild, Wild East
There are thousands of houses that operate on the fringes of the market and contribute to what one senior Western auction house executive describes as the “smoke and mirrors” aspect of the Chinese art market story. Auctions in mainland China are poorly regulated. In the absence of a developed legal framework, the major houses are working through their professional body, the Chinese Association of Auctioneers, to strengthen codes of conduct. One curious feature of the sector is the high rate of nonpayment. Last year a survey by the auctioneers association found that an astonishing 58 percent of lots fetching more than CNY10 million ($1.6 million) at auction in 2010 had never been paid for, representing some CNY5.6 billion ($884.5 million) in unrealized revenue. Many of these failed transactions may have been phantom sales intended to juice value, while others are thought to represent collusion between consignor and buyer to create fake collateral for commercial loans. It’s hard to see how such scams can work without the knowledge of the auction house. One senior Western auction house specialist suggests that as much as 50 percent of the impressive Chinese auction market results should be discounted, citing the high number of unknown players contributing to the total, the rate of nonpayment, and the gap between the stellar prices reported and the professionally assessed market values.
Clouding the picture further are the self-styled art investment funds that both drive and feed on price rises. Fund buyers are active in Hong Kong salesrooms as well as on the mainland, hunting for bargains that can be resold in short order and undoubtedly contributing to market distortion. In a recent interview, C.K. Cheung, a modern Chinese painting expert at Sotheby’s, described the rapidity with which works bought in Hong Kong were being flipped for profit on the mainland. One example he singled out was a painting he sold in Hong Kong in the spring 2011 season, only to see it advertised three weeks later at a Chinese auction house he had never heard of. How much these funds return to their investors is anyone’s guess, operating as they do in the badlands of China’s “gray” economy.
Another investment vehicle that enjoys a little more respectability but has an equally distorting effect on prices is the “cultural equity exchange,” which offers fractional ownership of packaged art assets. More than 60 operate in China, but the Tianjin Cultural Artwork Exchange, which opened in the northern port city of Tianjin last January, attracted particular attention because it was the first to offer shares to the general public. One of the two paintings on offer to Tianjin investors was Roaring Yellow River by the mid-ranking Chinese painter Bai Gengyan. Trading was halted by a regulatory authority in March, when shares climbed so high that they were valuing Bai’s work at around CNY103 million ($16 million), some 52 times greater than the artist’s previous high price. Regulators eventually allowed the exchange to reopen, only to shut it down again soon afterward. There are rumors it maybe allowed to reopen under state control in the future.
According to the Shanghai Daily, most Chinese cultural equity exchanges have investor capital thresholds of around CNY1 million ($160,000)—compared with just CNY50,000 ($8,000) for Tianjin—and offer a target of 15 percent annual appreciation in the shares being traded. Since these exchanges’ operations lack transparency and their representatives routinely decline to comment, it is impossible to judge how they are performing. One local commentator recently wrote in the Chinese art magazine Leap that these exchanges have all the hallmarks of a Ponzi scheme.
The success of these exchanges depends on speculators with ready access to credit. It is noteworthy that as the Chinese government has tightened lending controls over the past year to tamp down the country’s real estate bubble, speculative money has retreated from the auction salesrooms, too, both on the mainland and in Hong Kong. As the tide of speculative money recedes, the market correction evident last year will probably extend and deepen through 2012.
Among some auction professionals, a market correction is not seen as a bad development. Toward the end of last year, in an interview with the leading Chinese art market Web site Artron, Guardian cofounder Chen Dongsheng predicted a 40 percent reduction in the market over the course of 2012. A chorus of agreement and approval ensued. There is a general belief that if some of the heat can be taken out of the Chinese mainland market, a lot of the corruption will evaporate, leaving the field to the more reputable houses, dealers, and collectors. Gong Jisui, a distinguished academic at the Chinese Central Academy of Fine Arts, commented to Hong Kong’s Sing Tao Daily that a 40 percent drop in the market was “not only inevitable, but also healthy.”
One of the encouraging signs of the last few years is the emergence of principled collectors in China who are committed to their areas of interest. Auction house specialists Pola Antebi, of Christie’s, and Nicolas Chow, of Sotheby’s, note these collectors tend to have more refined tastes than most of the speculators who have been driving the prices of showier pieces of Qing Dynasty decorative arts to new levels. With an eye on those collectors as well as their traditional base in Taiwan and the West, these specialists say they will be putting together more “classic” sales for the next couple of seasons at least.
Meanwhile, those presiding over the hottest Chinese sector—fine Chinese modern painting—are sanguine. Cheung of Sotheby’s observes that with the runaway growth in this sector, even a 40 percent correction will leave longer-term investors in good shape. Kevin Ching, the CEO of Sotheby’s Asia, thinks the slackening market is anything but a signal to pull back. “Even if we were to have a massive downturn, we still need to invest,” he says. “China is going to be such an incredibly important market for us.” In fact, Sotheby’s expanded its premises in Hong Kong in April and plans to take on more staff in Asia as well. Curiel, of Christie’s, is also bullish. “I feel that we have only seen the tip of the iceberg in the growth of the China market. Asia is still an emerging market, and it will take some time to mature.”? Both Christie’s and Sotheby’s are keeping a close watch on their mainland competitors, with the result that these age-old Western rivals see each other in a different light. “One thing that has happened over the last 10 years,” says Ching,“is that we have both realized we cannot just see each other as competitors. However aggressively we go up against each other, we have always competed in the same environment, playing the game by the same rules. We now often have competitors from a totally different environment playing by a different game plan, different rules. That’s the big change.”
The question for mainland operators is whether the game they play is so different that it will hurt them in the long term. Chow, international head of Chinese ceramics and works of art for Sotheby’s, detects a shift. “Recently,” he says “I’ve heard from a few clients who have said, ‘Normally this is something I would plan to consign in [mainland] China, but now I want to sell through you because I am really afraid of nonpayments.'" When interviewed for this article, the heads of both Guardian and Poly made a point of saying that they wish to learn from the Western big two. As they move to open offices in the West and go up against Christie’s and Sotheby’s more directly for the best consignments, they may find that a level playing field will end up benefiting them as well.
Is there any prospect that collector tastes in Asia will shift to deliver what Sheaf of Bonhams calls the Holy Grail—the sale of Western art to the Asian market? The evidence suggests that the quest will be a long one. Dealers like to imagine the scale of the payday when Chinese collectors routinely buy Western art, but the occasional stories of Asians making top-end purchases in NewYork or London a few years back or a Gerhard Richter changing hands in Beijing stubbornly refuse to become a trend. The only regional house to publicly test the waters is Korea’s Seoul Auction, which has been holding dedicated sales of Western modern and contemporary art in Hong Kong since 2008 with underwhelming results. Marc Chagall’s Bestiaire et musique, 1969, fetched a creditable $4.15 million in October 2010, but in November 2011, 20 of 49 lots were bought, including the Jeff Koons cover lot, Smooth Egg with Bow, 1994–2008, and works by Andy Warhol and Candida Höfer. Sotheby’s toured one selling exhibition of Impressionist and modern works to China in 2010 and says it plans to organize more. But the house has declined to release the results from the first foray.
Are Seoul Auction and Sotheby’s pioneering a promising new market? It’s true that in the heady 1980s, Japan’s bubble economy drove up prices for Monet and Van Gogh. But Japan has a tradition of cultural exchange with the West dating back to the 1860s. China’s was slower to start. The last 50 years of China’s imperial rule (1860–1911) were marked by stubborn indifference to Western ideas. Although a handful of Chinese artists and intellectuals traveled to the West in the early years of the 20th century, these modest attempts at engagement never took root, eclipsed by the military struggle against Japan, China’s civil war, and the subsequent arid decades of Maoist rule, when the Chinese people were cut off from the West and—more significantly—from their own heritage. It may be a generation before Chinese collectors are lured away from their cultural patrimony, which they have only recently been permitted to own and appreciate. In the face of a possible 40 percent contraction, the safest bet for auction houses on the mainland and in Hong Kong may be to concentrate on established markets: Chinese traditional modern art, Chinese ceramics, Chinese contemporary art, jewelry, watches, and wine.
Rather than Western art, a more likely area of growth may be seen in the rise of Southeast Asian modern and contemporary art. According to Artprice’s 2011 survey, Indonesia’s art auction market expanded 39 percent last year, while Singapore registered a healthy 22 percent growth. Small, regional auction houses like Borobudur and One East Larasati, both in Jakarta, are already capitalizing on this market, and Christie’s and Sotheby’s are seeing record sales in Southeast Asian modern and contemporary art in Hong Kong. Indonesia is the key market to watch here, powered by impressive GDP growth and the rise of newly rich collectors eager to acquire both Southeast Asian modern masters and, increasingly, the region’s contemporary names.
Despite the emergence of new markets, China looks set to dominate the auction scene far into the future. The variety, depth, and value of its key markets and the sheer scale of the potential collector base suggest that China will be at the head of Asia’s challenge to the historical Western dominance of the fine-art auction rooms of the world.
To see works from the Asian auction houses' sales, click the slide show.
This article appears in the May issue of ART+AUCTION.