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China crisis puts global art market on alert

Buying was visible at the very top, but the confidence this gave is now on the wane

When China’s stock markets collapsed at the end of August, the international reaction was severe. Immediately following “Black Monday” on 24 August, when China’s Shanghai composition index fell 8.5%, the US Dow Jones index fell by more than 1,000 points in a week, its biggest sell-off since 2011; the UK’s FTSE 100 index was down nearly 5%, its greatest fall in six years; while European markets and other Asian countries also experienced dramatic stock price falls. A total $3.2tn was estimated to have been lost in a matter of weeks while the price of oil, already a battered commodity, fell to a new six-year low, adding additional economic pressure to several exporting countries. The stock markets, it seemed, were finally waking up to much of the world’s gloomy economic reality that growth is slowing.

For the art market, Black Monday raised several red flags. Ever since the credit crunch took hold in late 2007, the relatively strong economies in China and its fellow Bric counterparts (Brazil, Russia and India) have been providing the confidence on which art trading relies—and have been a significant factor in the rising prices of art since then. Come August, China’s buyers—across all industries—could no longer be counted on as the world’s consumers of last resort.

Keeping the Chinese flag flying The true extent to which Chinese buying has supported the art market has never been tested, but certainly there have been buyers at the frothy high-end. At one auction in New York in May, three Chinese buyers spent $116m between them on works by Picasso, Monet and Van Gogh. Meanwhile, galleries including White Cube, Gagosian, Lehmann Maupin and Perrotin have opened spaces in Hong Kong, seeking out the mainland Chinese buyers. Nearly all art businesses have invested time, money and staff out East.

Many of the market’s players are, as ever, keeping the Chinese flag flying. “The drop in shares means money is out of stocks, with more money available to buy art,” said Simon Kirby, the East Asia affiliate for Victoria Miro gallery, at September’s West Bund Art & Design fair in Shanghai. The hope, it seems, is that while the art market within China may continue to weaken, the effect on the international scene is limited—in much the same way as those in the financial markets hope that the problems remain local rather than creating contagion.

Where is the tipping point? But a cursory glance at macro data would suggest otherwise. The decision by the US Federal Reserve not to raise interest rates in September reflected investors’ concern over the slowdown in China (though it should help keep the economy and financial markets afloat in the short term). Meanwhile, figures from the UK’s Home Office show that the number of “investor visas”—issued to China’s high-net-worth individuals who intend to settle in the UK—are down 91% year on year, as reported in the Sunday Times. In the year to September 2014, the number of investor visas granted to Chinese nationals had doubled. Demand at the top end of London’s property market has fallen by nearly 40% in some areas, affected by a cooling of both Chinese and Russian buying. 

October’s art sales season in London and November’s in New York will be the first time that the possible effects of China’s slowdown could be assessed. Anders Petterson, the founder of ArtTactic, an art market analysis firm, says: “Economic risks are certainly on people’s radar. It’s a question of where and what the tipping point is—and whether we are close to it.”

What happened to the BRIC art markets? BRAZIL

• The South American giant boomed between 2003 and 2013. With its abundant natural resources, Brazil is the world’s eighth largest economy. Its emergence as an oil exporting nation and transition from dictatorship to democracy made it a major player on the world stage—and an attractive proposition for the art market. Western dealers wooed Brazilian buyers by taking on board local artists and participating in art fairs in São Paulo and Rio de Janeiro. The country’s public displayed a ravenous cultural appetite as Brazil’s art museums regularly topped our annual survey of best-attended exhibitions.

But the romance is cooling as Brazil falls into recession. The country’s debt was downgraded to junk status last month by the ratings agency Standard & Poor’s, while its currency has fallen almost 30% against the dollar since the beginning of the year and is approaching an all-time low. Increasing social unrest and toxic corruption scandals surrounding the government only add to the volatility.

The international art trade, already hamstrung by Brazil’s off-putting tax system, is suffering anew as the currency spirals. Disposable income is shrinking, which means local collectors are feeling less liquid, as are institutional supporters: a funding squeeze means many museums have cancelled or postponed major exhibitions. C.B.

RUSSIA

• Russia’s oligarchs were very present at international art sales as art prices peaked in 2008. In May that year, the billionaire businessman Roman Abramovich bought a 1976 triptych by Francis Bacon for $86.3m and Lucian Freud’s Benefits Supervisor Sleeping (1995) for $33.6m at two consecutive evening auctions in New York, and his appearance (with his wife, Dasha Zhukova) at Art Basel the following month was the talk of the fair.

Russian interest continued to boost art sales until relatively recently—but come 2014, Russia’s annexation of the Black Sea peninsula from Ukraine prompted Western sanctions and an oil price tumble. The value of the rouble has also collapsed. “The economy is in a nasty recession,” commented the Financial Times’s Lex column in September.

The effect on the art market was immediate: London’s Russian art auctions in November 2014 and in June (generally dominated by buyers from the country) were dismal. On the international stage, there is still some Russian buying at the very top, but it is certainly muted.

Meanwhile, promoting Russia’s contemporary artists to its wealthier patrons is still a slow process and relatively few galleries or artists from the country appear at international events such as the major art fairs. M.G.

INDIA

• India’s art market developed rapidly from the early to mid-2000s, particularly in Modern and contemporary artists. Between 2004 and 2008, as our art market editor-at-large Georgina Adam writes in her book, Big Bucks: “stock exchange trading would actually slow down while traders followed Saffronart’s online auctions.”

The 2008 credit crunch hit hard. Unlike in the other Bric countries, India’s economy depended on outsourcing its services to the developed world, which was in turmoil. Many art businesses, including nascent art funds, quickly shut down. Today, however, India looks to be one of the more sustainable developing markets, albeit its art sales totals are still small. (Christie’s most recent evening auction in Mumbai made $12.1m.)

In September, Sotheby’s opened an office in Mumbai and reports a 42% growth per year, over the past five years, in the value of purchases by Indian clients, both non-resident and resident. Modern artists have “held their ground and value,” says Edward Gibbs, the chairman of Sotheby’s India and Middle East, while jewellery and miniatures are very popular. On 6 October, Sotheby’s in London is selling 157 lots of predominantly Indian miniature paintings (16th-19th century) from the collection of the art historian Sven Gahlin (est £1m-£2.8m). M.G.

CHINA

• China was by far the country that caused the most excitement in the art market. Come the late 2000s, newly made billionaires seemed to be everywhere with an unstoppable appetite for luxury: the art economist Clare McAndrew’s data showed that China had overtaken the US as the world’s biggest market for art and antiques for the first time in 2011.

All was not quite as it seemed, however. Official data is often overstated in China, while information on art sales is notoriously opaque. Non-payment for works “bought” at auction also became an issue. In 2007, Sotheby’s introduced a “premium-lots” system at its Hong Kong sales, requiring bidders to register their interest in advance and pay a deposit. Come 2012, reported sales from China’s two dominant auction houses—Poly Auction and China Guardian—had halved. But many of those billionaires were real and their appetite to build private museums that needed filling with art continued apace. The collecting couple Liu Yiqian and Wang Wei, founders of the Long Museum, and the property developer Wang Jianlin, are unlikely to disappear from the international art market. But the concern is that China’s middle classes—many of whom invested in stocks—may no longer be in the market for art. M.G.

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