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EU tax and regulation changes and more sales could allow the European art market to retain top spot over China

Yet the EU's share of the market is steadily declining and the US may already have lost its lead

The publication of the Tefaf Report on the art market in 2010 sent shock waves through the art world when it revealed that China has now overtaken the UK as the world’s second largest art market. The figures, based on auction and dealer sales, are impressive: the size of the Chinese market for art and antiques grew by a jaw-dropping 530% between 2004 and 2010, and made a huge jump between 2009 and 2010, when it quite simply doubled. China now has 23% of the global art market, while the UK, which for decades has held the second biggest share, was knocked into third place with 22%, a fall of 5% from 2006. The EU’s share of the market is steadily declining: it now represents 37% of the global art market, down from a share of 53% in 2003 (see p65). The US, on the other hand, retains its market leadership with 34% of the international market, but its margin has narrowed—it was 46% in 2006.

Doubts have often been cast on the reliability of the Chinese figures, and I have already written about this issue (The Art Newspaper, December 2010, p64). With only a 1% gap between the UK and China, even a small amount of over-reporting could send the UK back into second place. But that, in truth, is not really the issue. The Chinese dragon is breathing down the EU and the US’s necks, and it is presumably only a matter of time before it overtakes them both. Indeed, a report by Artprice, based on fine art auction data only, says that China has already beaten the US to the number one position.

So what explains the weakening position of the EU, and can anything be done about it?

“The rise of China is a global phenomenon, and it’s not just in the art market,” says Guillaume Cerutti, chief executive of Sotheby’s France. “Asia is the part of the world that is creating the most wealth at the moment.” Last year, according to Forbes, China added 54 new billionaires to the roster, bringing the total to 115. For the first time in history, the size of the HNWI (High Net Worth Individual) population in the Asia-Pacific region was the same as in the EU—and their wealth was greater. The US still has the ninth highest GDP per capita (outstripped by the likes of Qatar, Luxembourg and Norway) as well as the highest number of HNWIs in the world.

Art is a luxury good, and sales will reflect the wealth of collectors: for the EU to do better, it needs to be richer. If the US art market recovered better in 2010 than the EU’s, it is because the country went into the recession earlier: the EU is emerging more slowly, so there is some hope that it could strengthen its position in the art market as its economy recovers.

Sheer numbers also enter into it: according to a Bain & Co report cited by the Tefaf Report’s author, Clare McAndrew, China is positioned to become the world’s third largest luxury goods market by the middle of the decade. China counts more than 120 cities with populations exceeding one million. To challenge this, the EU would need to expand its population massively—which is simply not going to happen.

So far, so bad. But there is one thing that the EU could do to improve its position in the global art market, and that is to simplify the regulatory environment.

As McAndrew points out, the US’s highly liberal trading regime has made it a major hub for the art and antiques trade. But grab an auction catalogue for a sale in the EU and look at the back. For a start, there is a long list of licence requirements and export/import regulations. The list, notes the small print gloomily, “is not exhaustive and there are other restrictions”.

Then there are the taxes: four columns of them, from the 5% Value Added Tax (VAT) on imports from outside the EU to a host of other cases—temporary admissions, re-exports, reduced rates, standard rates, all of which require pesky paperwork. “If tomorrow morning the 5% VAT import tax disappeared, that would really stimulate the art market in the EU,” commented Christie’s Asia president, François Curiel. “The regulations are cumbersome, they give the impression that it’s complicated to trade in Europe.”

Among these complications is the Artists’ Resale Right (ARR), a levy on the resale of work by living or recently deceased artists in the EU. While this does add another administrative layer to trade in the EU, it is certainly not relevant to the “China Rising” situation. ARR only applies in the EU to sales of contemporary and (in some EU countries) modern art. While this is the most significant market driver, it is a category in which the Chinese are hardly present.

But just simplifying the EU trading platform would hardly be enough to save the West from Chinese domination. To regain market share, the EU and the US need to sell more to Chinese buyers, either by penetrating the bamboo curtain (the internal market is forbidden to foreign auction houses) or by getting Chinese collectors to buy more western art. “Western companies have to go and seek the market in Asia,” says Cerutti. But for the moment, Chinese buyers are more interested in Wu Bin scrolls (one sold for $24.6m in 2009) and Qing ceramics than Warhol and, say, 18th-century Meissen model master Johann Kaendler.

Originally appeared in The Art Newspaper as 'EU tax and regulation changes and, of course, more sales could slow the tide. But not stop it'