Artsy’s Alexander Forbes worries out loud that China’s stock market collapse could bring down the global art market. Here he’s thinking of Japan’s role in the art market crash of 1990 when Japanese buyers at the top end exited the Impressionist market bringing down much of the rest of the dramatically smaller art market of the time. Forbes is right to raise the question but the comparison is probably spurious.
For one thing, Forbes notices that Chinese domestic art buying has swooned by 30% (or, at least, whatever the Chinese auction houses are reporting as art sales has fallen) but Chinese buyers have increased their activity at Christie’s by 47%.
There may be a simple explanation for the differential that also helps put the Japanese experience in perspective.
Japanese art buying in 1980s was often done to acquire a currency—impressionist pictures—that could be used as bribes in Japan’s gifting business culture. We saw something similar during the World Cup investigations with Russian President Putin making a gift of a Picasso to a FIFA official. This sort of gifting corruption has been a meaningful part of China’s domestic art market for the better part of a decade. The Chinese government is now in the midst of an unprecedented anti-corruption campaign. Combining the anti-corruption campaign with the domestic economic slowdown in China might help explain the big drop in Chinese art transactions.
When wealthy Chinese buy abroad, they’re not acquiring works that are directly comparable to the Chinese domestic art market. They tend to buy foreign art as a store of value and/or a mark of participation in a cosmopolitan global culture instead of China’s domestic culture. In this view, the shift to Western auction houses and Western art is a separate trend from the decline of Chinese art transactions.
Perhaps more to Forbes’s point on the potential for a Chinese market crash to remove essential buyers from the global art market, China’s equity markets are not central to the individual wealth of business owners. In other words, Chinese markets can crash but still leave many of its wealthiest individuals with more than enough excess income to continue buying Western art. (We saw the same thing, by the way, among American and European art buyers during the credit crisis. Many of the rich still had plenty of money to spend on art that was now perceived to be “on sale.”) Chinese buyers might even step up their foreign purchases if they think art is a viable reserve currency. Gold certainly isn’t right now.
Anyway, it’s worth considering Forbes’s argument:
The slide comes one week after artnet’s release of Q1 and Q2 numbers for auction sales globally. The report cites that purchases at auctions in Mainland China and Hong Kong are down 30% from the same period in 2014. This Chinese decline leads a downward trend in the global auction market of 6%, despite recent record-breaking sales and a significant year-over-year increase of 19% in New York.
In contrast, Christie’s Q1/Q2 report, also released last week, claims a 47% increase in spending at its auctions by Mainland Chinese buyers. The house does not give a breakdown of where those increases fell on the overall market distribution. But, in the context of that steep decline in Chinese spending on art domestically, the data suggests that a small upper tier of Chinese tycoons are leading that sizable increase in worldwide spending on prestige lots. Meanwhile, the bread and butter level of buyers that have sparked such a vast segment of the art market to invest in China have slowed their spending in step with—and in some cases perhaps in anticipation of—market contractions. […]
What impact such a wind-down will have in real terms on both the Chinese and global economy—and indeed China’s art market and the numerous art world ventures that have invested heavily in the region—is unclear. (Some have postulated that due to the relatively small percentage of the country’s wealth that is traded on its exchanges, the impact could be more slight than projected.) Moreover, key questions about the fundamental health of the Chinese economy and the potential knock-on effects of a planned increase in U.S. interest rates remain unanswered. Art purchases will no doubt be particularly sensitive to market corrections, something which the recent auction data suggests is already taking place. But, avoiding a long-term Japan-style meltdown of the Chinese economic machine is likely worth the sting.