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Now They Have Another Speculative Bubble in China: Art

testosteronepit's picture




 

Wolf Richter  www.testosteronepit.com

We have seen the photos of phantom towns of midrise apartment buildings and sprawling neighborhoods, lavishly laid out with broad avenues and huge shopping centers where the only and apparently inconsequential element that was missing was human life, like macabre scenes from a badly staged post-neutron-bomb apocalyptic movie. And we raised our eyebrows at the mini-revolts taking place in front of real-estate sales offices when new apartments sell for 30% less than the price at which these hapless people had bought similar apartments a few weeks or months earlier. And we marveled at the booming luxury car sales over the last few years that turned Audi, Porsche, BMW, and Mercedes-Benz into immensely successful brands in China, where people paid $20,000 or more on top of the sticker price to move up on the waiting list, though the premiums have given way to record-breaking discounts and free gifts. And then—it’s been so long it's hard to remember—there was the blistering Chinese stock market that blew up with the Beijing Olympics. It's down almost 60%. Yet, undeterred, buildings continue to shoot into the sky, whether or not anybody is going to use them or live in them or shop in them.

But Chinese investors have discovered another place to plow their itchy money into, and this time it's something actually ... enjoyable: art and antiques.

And with the zeal that only frenzied speculators can muster, they’ve whipped the Chinese art market into a froth, with bubble-licious growth rates of 177% in 2010 and 64% in 2011—to capture 30% of the $60.4 billion global art and antiques market, as measured by dealer and auction sales. Modern China simply doesn't do anything gradually. And so the country has become, in one fell swoop, the largest art market in the world.

Laurels that the US had been resting on through 2010—when it still had a share of 34% that, in just one year, shriveled to 29%, according to a report commissioned by TEFAF Maastricht. Third in line was the UK with a share of 22%. France was in fourth place with 6%. If the 27-nation European Union were considered one market—with umpteen languages and 14 currencies—it would be in first place with 34%, to be dethroned, possibly, by China even as we speak ... unless, of course, Chinese art speculators begin cashing in their chips, in which case all bets are off.

Turns out, art is a volatile business. Its violent swings depend on the economic mood, on investor fear or frenzy, and on how much money central banks are handing out. It is sensitive to collectors, as they’re euphemistically called, having to dump their collection on the market due to margin calls—before the Fed steps in to bail them out. The worldwide art market peaked in 2007 at $63.4 billion, but then the financial crisis brought it to its knees. It bottomed out at $38 billion in 2009, only to jump dot-com like by 63% over two years to $60.4 billion. So, despite China’s voracious appetite, the market still lags its pre-crisis peak. But it has come a long way since 1991 when it was a measly $10.5 billion.

As China is hopscotching from bubble to bubble, bitter frustrations with stocks, real estate, and other speculations are driving Chinese money into more exotic and at once more human instruments. In the process, presumed and dignified leaders get trampled, including France’s world-famous signature industry—wines. For the immense and somehow funny debacle of how France got slapped in the face by China, read.... Merde! Chinese Wines Did What to French Wines?

 

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Tue, 05/15/2012 - 00:13 | 2425855 rajonmestra
rajonmestra's picture

It's good to see that China continues to be a better country. I am a bit amazed on the increasing luxury vehicle sales like Mercedes-Benz into known brands in China. I do hope they would offer Mercedes Benz parts that are of reasonable price with the same great quality.

Fri, 03/23/2012 - 10:19 | 2283235 whoknoz
whoknoz's picture

the antiques business is the last of the great free markets...millions of individuals, each looking to buy a great item from a willing seller, then having to advance the price to a willing buyer...

it is a business of "ones"...the best thing you will ever have is something you will never see again...juxtapose this against the classic Chinese/western market model of "sell a million pieces of the same junk for a $1 profit on each piece" and you begin to see the subtleties of art and antiques...

not to say the AA market doesn't have its share of fraudsters, and that the international auction house have a playbook written by graduates from that very famous American Squid School,  but recognition of beauty and value are derived from hard earned knowledge that comes from years of experience...and  so what price do you put on true greatness?

and that's what keeps the business vibrant, exciting, and fiercely competitive: that little jar you bought at the yard sale yesterday might just be a rare Ming paint pot...of course, you'll flip it for $500 and be elated...then you'll see one 'just like it" in a big Shanghai auction for six figures and promise yourself that next time you won't be so hasty...

 

Fri, 03/23/2012 - 11:20 | 2283519 covert
covert's picture

the art will be destroyed, I remember when japan did this.

http://expose2.wordpress.com

 

Fri, 03/23/2012 - 08:58 | 2283013 stiler
stiler's picture

it's the rising middle class that buys art for their new lifestyles.

Fri, 03/23/2012 - 06:07 | 2282806 toadold
toadold's picture

"The  trophy Chinese girl friend problem" or what is driving luxury car sales.

http://www.youtube.com/watch?v=7RDVbO1320I&feature=player_embedded

 

Fri, 03/23/2012 - 09:55 | 2283174 Doubleguns
Doubleguns's picture

The shortage of women in China has some draw backs it would appear.  China men are soooooo screwed. That is if they want to get screwed.

Fri, 03/23/2012 - 04:03 | 2282765 AnAnonymous
AnAnonymous's picture

Not seen one time a link to reference the article from that US citizen author that laudates the entrepreneurial spirit of the young US citizen Portuguese going to find opportunities in Angola, or the young US citizen Spanish going to Argentina.

Yet there are data to feed that new colonization process.

Not a new article on the topic, not even a reference to the said article.

You've got references to that wine story, the taking a piss in your yard story, the super cars crash, now the so called art bubble in China.

Free press. Speak of everything but for some piece of information, only one time please is enough.

Fri, 03/23/2012 - 10:53 | 2283398 TheFourthStooge-ing
TheFourthStooge-ing's picture

AnAnonymous said:

Not seen one time a link to reference the article from that US citizen author that laudates the entrepreneurial spirit of the young US citizen Portuguese going to find opportunities in Angola, or the young US citizen Spanish going to Argentina.

So creating a strawsman once again?

Yet there are data to feed that new colonization process.

Data like the fabled past of old colonization process? Recall your fictional history of fabled past:

The bulk of colonization was made by US citizenism. The nineteenth century is the colonization century.

Fabled past, fabled past. Start inventing all kinds of baseless stories that has very little connection with the most straightforward connection to reality.

Contrary history to fabled past is sweeped under rug and can kicked on top of rug.

More history for you to ignore is follows. Here is a jolly little chronology of colonialism from fifteenth to eighteenth century for you to ignore without reading. Add to this a happy little picture of colonization map in 1800, all in place before ninteenth century, bulk of colonization not by US citizenism. Just more for your rug sweeping under and can kicking.

Free press. Speak of everything but for some piece of information, only one time please is enough.

Same old song. Chinese citizenism and Chinese citizenism comments, as usual. Nothing new here.

 

Fri, 03/23/2012 - 00:58 | 2282665 nasa
nasa's picture

I have a Monet in my suite at the Foxconn resort.  Might get a Picasso if we get a couple extra midnight shifts    

Fri, 03/23/2012 - 03:10 | 2282752 AldousHuxley
AldousHuxley's picture

 

you sure it is not a fake copy like everything in China?

Fri, 03/23/2012 - 03:59 | 2282763 AnAnonymous
AnAnonymous's picture

That has consequences.

It is somehow funny.

The Chinese are copying a country like the US of A, the mecca of US citizenism, where very few things are real. And the Chinese are lagging to copy anything that is real in US citizenism (that is the murdering quest for resources under humanitarian excuses)

Fake copies of items from the temple of the fake.

One might guess that the Chinese have something real in the process though.

What, it is another question.

Fri, 03/23/2012 - 00:55 | 2282658 dolph9
dolph9's picture

Unfortunately China is playing the role of the sucker, the patsy, the last one to the party, the one without the chair when the music ends.

They have given up a millenia old culture for a hit, a chance at the action.  That they "produce" is irrelevant.  What do they produce other than trinkets that break apart after a few years, and make the industrialists and bankers even richer?

Can anyone here think of anything new that is Chinese?  Anything?  Any major global company, any major scientific discovery, any art or culture?

I struggle to think of anything.  They have given up what they had to be a sweatshop for the global elite of the developed world.  Not too bright, folks.

Fri, 03/23/2012 - 03:54 | 2282761 AnAnonymous
AnAnonymous's picture

Any major global company,

_____________________________________________

Corporations are the product of middle class societies.

Fri, 03/23/2012 - 04:37 | 2282778 ffart
ffart's picture

Eh? Corporations are government entities.

Fri, 03/23/2012 - 07:36 | 2282845 AnAnonymous
AnAnonymous's picture

Then governments for which the middle class in the King class.

Fri, 03/23/2012 - 08:45 | 2282975 TheFourthStooge-ing
TheFourthStooge-ing's picture

Made me laugh. Typical Chinese US citizenism. Dilution of responsibility, kicking the can.

 

Fri, 03/23/2012 - 07:20 | 2282832 r00t61
r00t61's picture

Nah, I'm pretty sure corporations were invented by Chinese citizenism, in 65 million BC, give or take a few years.

Fri, 03/23/2012 - 02:33 | 2282721 williambanzai7
williambanzai7's picture

You forget their culture was virtually wiped out. Now they are rebuilding it and I have seen some absolutely amazing stuff produced in the classic artisan style.

They are meshing their modern style with their roots and doing it quite well.

If you haven't been to Shanghai, you can't possibly imagine it. I am constantly amazed but what I see coming out of there. The junk at Walmart...that's not the junk they are buying.

Fri, 03/23/2012 - 07:01 | 2282824 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

The junk at Walmart...that's not the junk they are buying.

Another point to keep in mind is that, as an example, the junk at Walmart was built to the specifications of the American designers and purchase agents. The Chinese are capable of building, and do build, high quality products.

The junk at Walmart is more a reflection of the throwaway society that America has become. The emphasis here is on cheapness, not quality. The old axiom 'you get what you pay for' is as true as it ever was.

 

Fri, 03/23/2012 - 07:38 | 2282850 AnAnonymous
AnAnonymous's picture

The Chinese are embracing US citizenism.

They do work within US citizenims constraints.

What Chinese are able to do is irrelevant. What US citizen Chinese will be able to do matters.

Fri, 03/23/2012 - 08:41 | 2282954 TheFourthStooge-ing
TheFourthStooge-ing's picture

AnAnonymous said:

The Chinese are embracing US citizenism.

That's an overly broad generalization.

They do work within US citizenims constraints.

They do work to the specifications given to them by those who contracted them to do the work. This is a more accurate statement.

What Chinese are able to do is irrelevant.

I don't believe that. I don't think you believe that either.

What US citizen Chinese will be able to do matters.

Yeah, sure. Made me laugh. A statement said only because of hidden purpose, a purpose this US citizen Chinese narrator is trying to offuscate.

Chinese US citizenism is based on elitism. Chosen PR of C aristocracy.

 

Fri, 03/23/2012 - 01:15 | 2282677 Uchtdorf
Uchtdorf's picture

I can think of one thing...They flooded the world with those digital photo frames that infected a lot of computers with malware. A butterfly in China flaps its wings and the US electrical grid says, "One Second After."

Fri, 03/23/2012 - 01:15 | 2282676 Bollixed
Bollixed's picture

"Any major global company, any major scientific discovery,..."

Gunpowder. Still the choice of freedom loving folks everywhere.

Fri, 03/23/2012 - 00:48 | 2282653 AetosAeros
AetosAeros's picture

The only 'art' I'd like to see is a good photo of each of the politicians face's after the stock market crashes and the local police who have been doing their dirty work for so long come to get the next paycheck that just ain't there anymore.

Yeah, those would be priceless treasure's for antiquities sake. 

Fri, 03/23/2012 - 00:46 | 2282647 non_anon
non_anon's picture

coup coup ca  choo!

http://www.youtube.com/watch?v=RG73Pk1yUj8

Walrus

Fri, 03/23/2012 - 00:20 | 2282626 CheapBastard
CheapBastard's picture

One sine quo non for a "bubble" is EZ Credit which i do not see in their art market. It's cash up front, as opposed to zero down and 100% financed RE in the USA and very near 100% in Australia and much of Euroland.

This is why I do not think it can be defined as a "bubble" in a technical sense. Overpriced maybe, but not a "bubble."

In any case, I'm a cheap bastard and would never, ever pay more then $20 (twenty bucks) for ANY art or antique.

Fri, 03/23/2012 - 00:12 | 2282616 GMadScientist
GMadScientist's picture

Hold on, the Metamucil is kicking in,...I'm almost ready for my performance in honor of China.

I do hope they'll come smell the "installation" after.

 

Fri, 03/23/2012 - 00:06 | 2282607 I_Am_
I_Am_'s picture

Margin calls in art deals, bubblicious market???  which means there will likely be derivative hedge of some sort, which means the squid and friends involvement, which means nothing changed....... 

Thu, 03/22/2012 - 23:05 | 2282479 williambanzai7
williambanzai7's picture

I am hesistant to label everything a bubble when you are talking about a country that is producing wealth. It's not quite the same situation as the Art scene in NYC which is a giant Wall Street Ponzi balloon. Many of these people are repatriating their countries heritage, which was pillaged for so many years. It may be frothy, but not necessarily evil. The idea of appreciating fine art is not something new in Chinese history.

 As for the Western Art, I suppose they are indirectly supporting the European economy by purchasing assets with arguable long term value.

I guess my point is I'd rather see them spending it than giving it to Goldman and JPM to fuck around with.

As Ralph Cramden said: Say what you want, when I had it I spread it all around.

Fri, 03/23/2012 - 09:53 | 2283167 lincolnsteffens
lincolnsteffens's picture

You hit that nail on the head WB7. I've got first hand experience with the Chinese frenzy to buy up certain aspects of their exported heritage like porcelain for the Western Market. Prices are 5 times higher for some genres of export porcelain in China than in the US. They are still exporting porcelain but some of it is very good fakes of desirable antiques. You can even see these on E Bay.

Fri, 03/23/2012 - 03:17 | 2282741 Zero-risk bias
Zero-risk bias's picture

It's a great article, over the years I've been wondering how much is malinvestment hype, and how many makes genuine bona fide investments grade here in China. I see that this new-wave of art as somewhat introspective but would concede that it is as you say, "repatriating the countries heritage". Therefore, isn't strictly a bubble phenomenon.

Still, I would guess one might ponder if/when things grind to a halt, what would be more valuable, a piece of cultural significance, or something like silver with a plethora of industrial applications and a generically accepted medium of exchange?

Or anything with basic utility value, water, crops, land, shelter etc. Frothy at best?

Fri, 03/23/2012 - 00:59 | 2282666 RockyRacoon
RockyRacoon's picture

Like porn, I know good art when I see it.  Yours is museum quality!  Your art that is...

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