xinhua
Is China's auction market another bubble?
www.chinaview.cn 2005-05-14 10:36:21

By Xinhua Writer Quan Xiaoshu

BEIJING, May 14 (Xinhuanet) -- With the country's stock market at the lowest point in history and real estate on the brink of an explosive bubble, the ever-more affluent Chinese seem to have a new idea on where to invest -- collection from the country's booming auction markets.

The leading auctioneer Guardian is currently showing over 6,000 articles, including paintings, calligraphy works, porcelain and jade, in Beijing's five-star Kunlun Hotel before its coming springauctions from Friday to Sunday.

"Most of the items are found with arduous efforts and are really classical works," said Kou Qin, deputy managing director ofChina Guardian Auctions Co., Ltd.

The business is indeed on the rise. Guardian reported a total transaction volume of 1 billion yuan (120.9 million US dollars) last year, a drastic jump from 70 million yuan (8.5 million US dollars) in 1994, a landmark year when Guardian hurried into its first auctions only half a year after it was founded.

Rise From Oblivion

"Nobody could assure us success when we, a group of young people with no expertise in archeology or relics authentication, set up the new company. But Guardian astonished the world, sellingwashes by Qi Baishi and Zhang Daqian, both famous Chinese painters,for millions of yuan each that spring," recalled Kou.

China resumed the auction industry in 1986 after a long break under its planned economy. Rapid development has taken place only in the past decade.

Recent statistics from the Ministry of Commerce show that China's auction industry registered a transaction volume of 200 billionyuan (24 billion US dollars) in 2004, a 45 percent increase over the previous year.

The business scope of auctions has extended to many sectors, from relics and art to cars, items confiscated by legal organizations and real estate to patent rights and advertisement.

The figures also show staggering profits. The final bid price for any piece of art being successfully auctioned is at least 20 percent above the asking price. For some items with a low initial offer, it is not surprising to find the sale price dozens of timeshigher.

In April of 2002, Guardian sold a scroll titled "Portrait of Precious Birds" painted by Emperor Huizong of the Northern Song Dynasty (960-1127), for a record price of 25.3 million yuan (3.1 million US dollars), more than three times the initial offer, after 60 rounds of intense bidding.

Market Potentials Huge

The lucrative business has drawn more players to compete. Chinahas seen auction houses mushroom, reaching 4,000 to 5,000, employing nearly 50,000 people, including more than 5,000 registered professional auctioneers.

"With a history of 5,000 years, China is acknowledged as a potentially richer source for relics and art capable of being auctioned than most other countries. The market potential is, understandably, huge," Kou Qin said.

But he also warned that making a living through auctions is notas easy as it looks. The competition is getting more intense.

He explained that auction companies earn commissions as intermediaries, charge a 10 percent commission to the buyer and the same to the seller. However, in order to win business, some companies only charge the seller, while lowering its commission to6 percent, or even 5 percent. Some even offer their services "free."

Moreover, it is by no means cheap to host an auction. An auction house must spare no expense on publicity in order to attract the best pieces for its auctions. It has to send out beautifully printed catalogues, which may cost hundreds of thousands of yuan, even millions of yuan, to compile and produce. On top of these, there are venue, storage, insurance and entertainment expenses to cover.

"Some small auction companies cannot afford such expensive costs and survive for only a very short period," Kou said.

Under-Table Deals Corruptive

Meanwhile, insiders also show an increasing worry over the under-table deals that are corrupting the burgeoning auction industry.

At the beginning of this year, a newly established auction house, the Red Sun, sold another painting by Emperor Huizong at 61.16 million yuan (7.4 million US dollars), but received a draft of only 15 million yuan (1.8 million US dollars) from a Shanghai collector after the media cast queries about the painting's authenticity.

"If an ancient art item is proved to be fake but still auctioned off successfully, it's very likely that the auction is involved in illegal deals, like money laundering or business frauds," said a boss of an auction house on condition of anonymity.

The boss explained that offenders could transfer large-sums of illicit money quickly and securely via auctions. They could also elevate the prices of relics or art works deceptively and leave them with banks as a pledge to secure immense loans.

Some people even take advantage of auctions to bribe governmentofficials by buying at exorbitant prices "art works" the officialsentrust auction houses to sell, he said.

Investors Cautioned

To ensure the healthy development of the industry, the country emended its auction law in 2004, which clarifies stipulations concerning the auctioning of cultural relics, the most disputable articles in terms of their authenticity and qualities.

Meanwhile, the State Administration of Cultural Heritage began issuing specific relics auction licenses last May. More than 100 auction houses have received such permits.

The qualifications needed for the license include permits from local cultural heritage as well as industry and commerce departments, validation for registered capital and certificates ofat least five professional auctioneers.

"More than one third of the companies applying for the license have been washed out. It's a good start for the government to strengthen the supervision and to standardize the industry," said Wang Fenghai, secretary-general of China Association of Auctioneers.

Mei Ninghua, director of the Beijing Administrative Bureau of Cultural Heritage, stressed that more efforts should be devoted tostudying the rules of the auction trade, inflated by leapfrog progress in recent years, to avoid similar bubbles in real estate and stock markets and to maintain a sound sustainable development.

Fang Yanshan, a Beijing collector of ancient silk products, considered that most of the initial offers in the auction market are now unreasonably expensive with little room left for added value.

"We have to be more cautious in selecting items with qualities matching up to prices and able to repay us more profits in less than five years. Investment is like gambling if it's done without far-sighted wisdom," Fang said.

http://news.xinhuanet.com/english/2005-05/14/content_2956155.htm

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Asia Times, May 13, 2005
Bricks, golf and art for China's new rich
By Michael Mackey

SHANGHAI - The booming Chinese economy has created a new middle class - more numerous than the entire population of the US - which is the main preoccupation of Western multinationals eyeing Chinese investments. Everyone knows this, but what few people realize is that a growing class of nouveau riche has been created as well. Though less numerous than their middle class counterparts, they are reconfiguring China in a number of surprising ways - and their influence is only going to increase.

Bricks, mortar and landscaped compounds
A highly significant change in housing patterns is occurring as the new wealthy invest in bricks and mortar and, it must be said, their own comfort. While every Chinese city is seeing vast numbers of apartment blocks built, the real status symbol is a villa or house in a new compound on the city outskirts, or even better, comfortably within. Just any house won't do: it has to be new, spacious and well designed, and the services necessary to provide this are being brought in, often from foreign professionals - a significant departure from previous practice.

China is a country where land is at a premium, even more so in the fastest-growing coastal areas. So having a home built on a land area of between three and five hundred square meters in a landscaped compound with lakes, ponds and 24 hour security, is proof of serious money. But the suburban compounds raise a host of serious issues: their growth has been at the expense of arable land, the shrinking supply of which is already a major problem in China. And while "suburban flight" has been a common pattern in other countries, what are the social and political implications of the emergence of a wealthy class that wants to physically separate from the rest of the population? What will be the effects on urban China if the new rich flee the cities just as a vast horde of landless peasants move in?

The new rich aren't just spending money on their homes, however. They are increasingly indulging in leisure activities unimaginable in the Mao years, including golf, art collecting, and even yachting.

The Chinese golf explosion
The cigarette ad slogan "you've come a long way baby" could have been referring to China's burgeoning love affair with golf.

Back in 1982, only three years into China's "reform and opening up" policy, Arnold Palmer designed the mainland's first golf course. It now has around 200 clubs, up from just 20 in 1994, according to Al Campbell, the former editor of Asian Golf Monthly. Some have outstanding facilities and locations, and are being integrated into the international circuit. This, rather than economic statistics, is probably the best signal of irreversible change in China: golf, the quintessentially Western business and banter game, has become de rigeur in China.

Under an hour's drive from Beijing, spread over 404 hectares facing the Great Wall at Badaling, is the Pine Valley Golf Resort and Country Club, which claims to be the most exclusive private club in China. (Whether the patrons include the top echelons of the Communist Party is one of those questions you just don't ask, but that the question even suggests itself is symbolic of the end of enforced egalitarianism.) The facilities are superb, and include the 18-hole Jack Nicklaus Signature Course, a 27-hole Jack Nicklaus II Links Course, and two spectacular clubhouses with no end of places to eat and drink; but the facilities that really make you rub your eyes are the equestrian club and (believe it or not) pet hotel. Sadly, the hobbies and vices of the idle rich are catching on fast in China.

Jibes aside, the larger significance of the golf boom lies in the way it, much more than the wasteful Formula One tracks in Shanghai, is inexorably drawing China into the international sporting community. Pine Resort hosted China's richest golf event to date in late April, the US$2.3 million Johnnie Walker Classic. The week after, and for the second straight year, Shanghai's Thomson Pudong hosted the $1.5 million BMW Asian Open, which is only one of the five European Tour-sanctioned golf events being held in China this year.

The best is yet to come, however: November's planned "Champions Tournament", to be played at Sheshan Golf Club in Shanghai's outer suburbs, will offer a staggering (but not yet officially confirmed) $5 million purse - making it the richest tournament ever held in Asia. It's said that Tiger Woods will attend. China, like the Japan of old, is seemingly fast becoming a useful cash cow for celebrities as it joins the international sporting community three years ahead of hosting the Olympics.

Given these facilities and the prizes clubs can offer, it's not surprising that golf is an expensive hobby. One club has an annual membership cost of 4,000 yuan - still a month's salary for the emerging middle class - and there are green fees of 500 yuan ($60) per game. But the real "sticker shock" comes from the one-off joining fee, which is usually of the order of $70,000-90,000 (a year's salary for an upper-middle-class American).

But "they're still selling" despite the costs, says former editor Campbell. In China, he points out, "golf is associated with money and being excellent for business. 50% of the memberships are owned by private companies who give them out to their executives."

Incredibly, the general expectation among leisure market watchers is that yachting will be the next thing to hit China. Shanghai is already planning at least one marina, and the city hosted China's first-ever private boat show early this year.

The new Chinese art patrons
More startling still are the art purchases of some of these executives. The Chinese art market now has a wide variety to choose from, allowing buyers to indulge their individual tastes. There are figurative works, some non-representational pieces, works harking back to more traditional Chinese styles such as ink drawings and even paintings adopting the bold colors and simple lines of Maoist propaganda.

"Prices vary, [depending on the scale of the piece] and the status of the artist," said David Chan, curator-manager of the Shanghai Gallery of Art. Art isn't cheap, though: prices range from $25,000 to $100,000 for a painting, and a more modest $2,000 for a photograph. Some Chinese artists, such as Yue Minjun and Fang Liqun, are known both locally and internationally. As in the rest of the world, some Chinese artists are celebrities, with their activities well-reported in local media.

More interesting is the noticeable prominence Chinese buyers have in a domestic art market that is effectively just beginning. Some two-thirds of purchasers are local people who have made money in either property or financial services buying art for their own use in their homes or offices. The remaining third is foreign collectors who tend to see a country like China as a place to buy what they can't afford elsewhere. China, it seems, is producing high art as well as mass-market consumer durables.

Also, one peculiar aspect of the local art market suggests that there is great scope for future growth: the lack of collectors. Most art buyers are one-off buyers. "The idea of a collection is still quite foreign," says Chan. This situation makes galleries also the educators and custodians of what is effectively a frontier market. They are already playing an educator's role, and Chan believes it is time to internationalize Chinese purchasing power. "We see the need to start bringing in foreign artists," said Chan, who plans an Andy Warhol exhibition later this year. "We don't know if it will sell well, but we're hopeful." Just as he's hopeful that Warhol's psychedelic Mao portraits won't be too controversial.

It is perhaps wise not to overstress how much one group of people can change China, especially when they lack political power. According to one consultant, the country has around one million super-wealthy and some 13-15 million people (1% of the population) best described as middle to upper-income consumers.
The new wealthy are geographically concentrated in urban areas, usually away from the rural areas where the great mass of the people still live; but in the principal cities they are influential, and their numbers are growing. US investment bank Morgan Stanley forecasts the market for luxury goods - goods intended for the new rich - could be 8% of the population, over 100 million people, by 2010. Regardless of statistics, the new wealthy are already changing Chinese society, and their continued growth will bring both challenges and opportunities for the country.

http://www.atimes.com/atimes/China/GE13Ad04.html

 

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(Art-Eastasia list)

http://www.chinaresource.org
http://www.fluktor.de

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