Despite a good percent of sold lots, the sale was severely disappointing in terms of value.

It felt like 2009 all over again. Two thirds of the way through Sotheby’s autumn 2012 sale of Contemporary Asian Art a ghastly hush fell over the room. Chinese contemporary artists, who in the past have been stalwart selling artists, bombed.

Zhang Xiaogang, “pass”; Mao Xuhui, “pass”; Zeng Fanzhi, “bought in”; Yang Shaobin, “that is a pass”. Staff on the phone bank with nothing to do hung their heads and squirmed uncomfortably as the bad streak went on and on. Yue Minjun, Li Shan, Wang Guangyi… “pass”.

In total there were seventeen passes in a section of 26 lots. There is a phrase in US legal circles, flop sweat, which is used when an argument goes badly for a trial lawyer, but he is committed to seeing his position through and a sensation of clammy horror gradually creeps over everyone in the room. A similar mood hung over this sale.

Just how bad was it?

The total sale comprised approximately 150 lots of which roughly 120 lots were contemporary Chinese. The remaining lots were a handful of works by Hong Kong, Korean and Japanese artists. Around 75 percent of the lots sold, but these figures do not tell the whole story. The sale was a severe disappointment in terms of value, recording a total sale value of only USD15m, well under the estimate. The highest-priced lots performed worst.

So what went wrong?

There are plenty of reasons which could be put forward to explain the sharp pullback in the buying interest of Chinese contemporary art.

1. Economy

China’s economy is slowing as appetite in the US and Europe for its manufactured goods drops sharply.

The impact is being felt all across China. Car dealerships are bursting with unsold automobiles, warehouses are groaning under mountains of unsold goods, and millions of apartments remain vacant. In a bid to liquidate inventories, companies are engaging in vicious price-cutting wars.

CSMonitor, 8 October 2012

This might be a partial explanation, but the success of Sotheby’s Fine Chinese Art and Twentieth Century Chinese Art sales suggests that the economy is not affecting demand for art in other sectors of the Chinese art market. This problem is specific to Chinese contemporary art.

2. Competition

At the same time there is new competition in the auction market. China Guardian Auctions Co. Ltd, which was established in 1993 and is described as one of the top four auction houses worldwide, held its inaugural auction in Hong Kong. It hosted over 700 bidders at the Mandarin Oriental Hotel on 7 October 2012, too, the same day as the Sotheby’s sale. There has been much buzz and speculation about China Guardian’s first auction outside of mainland China. However, the sale featured over 350 works of traditional Chinese painting and calligraphy and furniture, not natural competition for contemporary art.

3. Poor structuring of sale

Did Sotheby’s fail to match demand and supply by structuring a sale with too many lots or lots at the wrong prices? Did Sotheby’s misread demand?

According to The Wall Street Journal,

Overall purchases by Chinese collectors accounted for roughly a fifth of Christie’s global sales in the first half of 2011. Sotheby’s sales in Asia rose to nearly USD960 million last year up 47 percent from 2010. In 2011, China sales accounted for forty to fifty percent of Asia sales. China sales account for forty to fifty percent of Asia sales.

Clearly the Chinese market matters. The market for traditional and historical works, calligraphy, ink and modern works remains strong because, according to a senior member of Sotheby’s staff quoted in The New York Times,

‘They have an interest in reclaiming their culture and their history,’ Mr Howard-Sneyd said.

But Sotheby’s recognition that the market for contemporary Chinese art was pulling back sharply was evident in the way it had structured the sale. Back in 2007 and 2008 contemporary Chinese art warranted dedicated sales. More recently and in this latest set of auctions, contemporary Chinese art was combined with other North East Asian categories, Japanese and Korean, and the sale was titled Contemporary Asian Art.

There were many lots priced at HKD20,000 to 200,000 and there was a section of less pricey photographs and affordable lithographs. Buyers were not absent, but they were price sensitive. The most expensive lots, which were ultimately bought in, often attracted bids but failed to meet the reserve price. When the prices dropped, bidding activity picked up.

4. Reaction to Uli Sigg donation

In June 2012, a headline-grabbing announcement was made. Uli Sigg, former Swiss Ambassador to China and long time art collector, will donate a massive portion of his collection of Chinese contemporary art to M+, the new contemporary art museum that will open in Hong Kong in 2017 as part of the West Kowloon Cultural Development.

The collection is said to document the evolution of Chinese contemporary art from the 1970s to the 2000s, and 310 artists are represented including Liu Wei, Zhang Xiaogang, Xu Bing and Ai Weiwei.

The donation, valued by Sotheby’s at US$163 million, was expected to bring praise and plaudits, but to Sigg’s surprise a few weeks after the announcement, online speculation and critical comments about the motives for the donation began to appear and then went viral in China. Some demeaned the quality of the collection; some raised cynical questions about why Sigg had kept pieces for himself.

In any other country, a major donation such as this would send auction prices soaring, but not so in China. Sigg attributed the adverse reaction to a culture which is unused to and therefore suspicious of art donations.

5. Copies

In the United Kingdom, antique Staffordshire pottery prices have plummeted thanks to fraudulent copies from China which have flooded the market. There is no doubt that plenty of copies of leading Chinese contemporary artworks exist, but this has been a problem for some time.

So perhaps the question is whether this year has brought a tipping point and finally contemporary Chinese art prices are suffering the Staffordshire pottery syndrome. Markets are bound to be disrupted, perhaps permanently, when the numbers of fakes on the market explode and buyers lack faith in the provenance and authenticity of works.

According to Forbes, Nancy Murphy, an art lawyer in Beijing, says that as much as eighty percent of what is offered by Beijing Poly is fake, as is a fair proportion of lots sold by China Guardian.

6. Price-fixing

Forbes has recently written a well-researched piece titled “China’s $13 Billion Art Fraud” arguing that Chinese auction prices are unreliable. Writer Abigail R. Esman reports that sellers in cahoots with Beijing Poly buy their own works at falsely inflated prices.

As buyers do not have to pay themselves, they simply pay a small fee to the auction house for this new “proof” of value. They then go on to sell the piece at a high price to someone else or give it away as a bribe. Prices are also recorded when buyers win a bid and then default on payment, again a false price is recorded.

Auction rackets are not confined exclusively to Chinese auction houses, but the scale of this kind of activity in the region is said to be breathtaking.

7. Deposits

In response to the risk of non-payment, Sotheby’s introduced some stiff safeguards which could have deterred buyers and particularly spontaneous bidders. Some high-priced lots were flagged as “premium” and Sotheby’s reserved the right to require a pre-payment of a HKD1 million deposit to clear before the sale.

Any successes?

Liu Wei

Liu Wei’s Revolutionary Family Series – Invitation to Dinner achieved price of $2.24 million compared with an estimate of US$1.5-1.9 million, a world record for this artist at the Hong Kong sale.

Other

Here are the top 5 successes according to press release from Sotheby’s

Please note actual figures includes buyers’ premium, estimate does not. The difference can be up to 25%.

1. Zhang Xiaogang

Tianenmen No 1, oil on canvas, Actual HK$20.82m/Estimate HK$15-25m

2. Liu Wei – see above

3. Zeng Fanzhi

Fire, oil on canvas, 2007, Actual HK$6.62m/Estimate HK$4-6m

4. Zeng Fanzhi

Masked Series, Untitled, oil on canvas, 2006, Actual HK$3.38m/Estimate HK$1.8m-2.5m

5. Liu Ye

The Pope Rescues a Small Pig, acrylic on canvas, 2001 Actual HK$$5.42m/Estimate HK$5-7m

The last lot failed to meet its reserve price, was bought in and then was reintroduced and sold.

What failed to sell?

Some examples of what failed to sell:

Zhang Xiaogang, Brothers

Estimate HKD6 to 8 million (USD775,000 to 1,040,000).

Zeng Fanzhi, Portrait o7-8-1

Estimate HKD4.3 to 5.3 million (USD555,000 to 685000).

Wang Guangyi, Great Criticism – Art No

Estimate HKD1.5 to 2,5 million (USD 194,000 to 323,000).



We have suggested a number of reasons for the reduced appetite for Chinese contemporary art. Do you have any observations or suggestions? Please leave us a comment below.

[Editors’ note: This post has been amended from the original to incorporate reader feedback. See the comment section below for more detail.]

KCE/KN/HH

Related Topics: market watch – auctions, business of art

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