Economics Fairs Market China

China’s new art sold for 200% more outside China

A huge disparity in sale prices at home and on the international market is only partly explained by higher mark-ups in the US and the UK

Two Talents from Xiang River, 2007, by 3W (Wei Rong, Wu Erlu and Wang Hao) on display at the spring 2012 Beijing Poly International Auction

An independent report compiled by members of New York’s Federal Reserve Bank found a marked disparity between prices for classic, contemporary and Modern works by Chinese artists bought by collectors outside mainland China and the prices paid on the mainland. The difference is greatest for contemporary art: on average, works by Chinese artists sold abroad for 200% more than they did on the domestic market. Sound provenance, guarantees of authenticity and high auction estimates have combined to drive up prices for Chinese art on the international market, the report’s authors found. But overall the disparity between prices achieved in the international and domestic marketplaces is reducing as China-based collectors, many from the growing middle class, move aggressively into the market.

Benjamin Mandel, Jennie Bai and Jia Guo, the co-authors of Going Global: Markups and Product Quality in the Chinese Art Market, analysed more than 670,000 auction lots listed on the Chinese website, covering calligraphic works and oil paintings dating from the 18th century to 2011. Decorative arts items (such as porcelain objects) were excluded from the analysis.

Their research encompasses 3,887 sessions at 317 auction houses from 2000 to early 2011, focusing on “the effect of internationalisation on the global distribution of art prices”—that is, how prices differ according to where the work is sold.

According to the report, the gulf in prices was most noticeable in 2002, when the average hammer price for a Chinese work sold at auction internationally was Rmb500,000 ($80,620) compared to less than Rmb50,000 ($8,000) for domestic sales. “There was a lot of illiquidity in the market from 2000 to 2003, and then both domestic and international sales took off,” Mandel says.

As markets slumped worldwide during the global financial crisis, international sales dipped to an average of less than Rmb400,000 ($64,400) in 2009 according to the research. But the domestic market held up, with sales of internationally known artists fetching Rmb200,000 ($32,200) on average within China.

“Part of the reason that higher-quality, higher-priced Chinese art is sold outside China is the level of market development in the US and UK, and a higher preference for quality,” Mandel says.

“The narrowing of the international premium suggests that this has been reversing in recent years,” Mandel adds. High-quality works have subsequently been drawn back to mainland China, he says.

The report explains that the main reason that internationally sold works have much higher prices than those of domestically selling artists is a difference in quality and, to a lesser extent, mark-ups. But how is this quality premium, a backbone of the analysis, measured?

“Quality characteristics of each work, such as physical traits, measures of authenticity, proxies for provenance, and characteristics of the auction transaction, are observed. Therefore, we can tell if the artworks with more desirable characteristics are being sold inside or outside China,” the report states. Mark-up is explained as “anything that is not cost-related”.

Crucially, international sales commanded a 156% premium over domestic sales (see table); the “quality premium” is especially large for contemporary art, the report says, with prices 211% higher on average for works sold abroad by Chinese artists for the prescribed period.

This is borne out to a degree for certain artists: for example, in 2009, out of 50 lots presented on the art database for works by the contemporary artist Zhang Xiaogang, only eight were consigned to Chinese auction houses. That said, the top lot, a 2001 work from the “Bloodline” series, sold for Rmb16.8m ($2.4m) at Beijing Poly International Auction. The remaining 42 lots that year were consigned outside mainland China.

Meanwhile, according to artnet, the contemporary artist Fang Lijun still managed to secure a respectable price of Rmb935,000 ($115,637) at China Guardian Auctions in November 2005 for a 2005 untitled painting. But the highest price achieved at auction that year was HK$1.4m ($185,703) for the painting 2003.4.23, 2003, sold at Sotheby’s Hong Kong, denoting the growth overseas of the artist’s market.

The traditional New York and London duopoly of the art market is ending but Michael Plummer of the New York-based art advisory Artvest Partners strikes a note of caution. “The new collector base in China was buying recklessly, and I use that word intentionally… They were buying things that had authenticity issues,” he says. “No serious collector would pay the money they were paying, but they were in this feverish acquisition mode.” By the end of 2012, however, the market had slowed down; full-year sales at Beijing Poly International Auction fell 49% compared with 2011.

Doubts remain, however, about the accuracy of the mainland Chinese auction houses’ figures as well as the large quantities of fakes sold at auction.

Tao Wang, the head of the Chinese works of art department at Sotheby’s New York, is sceptical about the Going Global report: “It applies rather sophisticated methods to the Chinese data. But it is limited to Chinese paintings and calligraphy, and does not include [decorative] works of art,” he says. “There are many different schools and periods that should be treated differently. So, the conclusions are of little use when coming to an overview of the Chinese art market. A good try, but [the report] really lacks practicality and needs more micro-analysis.”

According to the first bar, prices for works by Chinese artists sold abroad were 156% higher than those sold in mainland China; 127% of this premium reflects the fact that international sales were for higher quality works of art. The quality criteria employed by the report’s authors include provenance, authenticity and pre-auction estimates. The second and third bars show that well-known artists (as measured by number of international sales) achieved a much higher international price and quality premium. (Figures are from the Going Global report.)
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