Buying art can be as prestigious as owning a downtown luxury apartment, a high-powered MercedesBenz or other pricy toys the rich use to fight ennui and establish status. In China’s modern times, the main difference between a fancy limousine and a painting is that the limousine is certain to decline in value from the day it’s driven off the lot.
　　On the evening of June 3, Li Keran’s painting Mountains in Red set a new record in China’s spring auction season when it was sold for a whopping 293.25 million yuan($46.33 million) in Beijing. Li (1907-89) was a famous modern Chinese painter born in Xuzhou of east China’s Jiangsu Province.
　　The global art market has seen new highs in revenue recently, following the turbu- lence of the world economy. A major reason was the emergence of classic and outstanding works, said Xi Mu, Deputy Director of Chinese Institute of Art Market.
　　Painting at a price
　　China has caught up to the international art scene. According to statistics from the Art Market Research Center, the total trade volume of China’s art auction market (including the Chinese mainland, Taiwan, Hong Kong and Macao) reached 97.45 billion yuan ($15.4 billion) in 2011. It was an opulent increase of 65.5 percent compared to the previous year’s 58.875 billion yuan ($9.3 billion). Modern fine art sold at public auctions in 2011 on the mainland covered 41 percent of the global art market, making China the most important modern art market worldwide.
　　Despite the impressive 425 million yuan($67.1 million) earned by Eagle Standing on Pine Tree painted by Qi Baishi (1864-1957) in 2011, the most important category of China’s auction art market remains classical Chinese painting with a 61-percent share. Oil paintings and contemporary art are playing a minor role in the auction market, contributing 8 percent to the total trade volume. Porcelain and miscellaneous items held a share of 31 percent of the overall volume.
　　On April 4, Hong Kong Sotheby’s Auction House put Ru-Kiln Sunflower of Celeste Blue Glaze from the Northern Song Dynasty(960-1127) up for auction. It was sold for HK$207.86 million ($26.8 million), creating a new international auction record for porcelain from this period of Chinese history.
　　Auction powerhouses Sotheby’s and Christie’s are not allowed to operate on the mainland, though they regularly hold exhibits at luxury hotels in Beijing and Shanghai. Buyers are invited to view the wares, but must order them from Hong Kong, Macao or any of their other outlets spread over the world. Bulky art catalogues in Mandarin are now standard in upscale locales, while Sotheby’s recently staged its first show in Chengdu of central China’s Sichuan Province.
　　Finance meets art
　　The target demographic is easy to distinguish: They are the 1.1 million millionaires living on the mainland. Whenever an auction on Chinese art opens in London, New York or Paris, a mass of Chinese buyers starts bidding in person or via phone with very discrete go-betweens.
　　Urs Meile, an art dealer from Switzerland and one of the early arrivals to China’s art market, once warned New York art critic Barbara Pollack about the special characteristics of the emerging art market in China, calling it the “wild, wild East.” The term appeared in Pollack’s lively account of An American Art Critic’s Adventures in China.
　　Pollack observed peculiarities in how dealers and artists interact in China. Exclusive marketing doesn’t exist, for instance, and for a short period of time, a dealer may be granted the right to act as the artist’s exclusive representative. In a very volatile market, a dealer might earn a fortune rapidly by reselling a work of art, without any obligation to share the money with the artist.
　　Reports of record sales at auctions should not overly tempt the sober investor. Contrary to popular perception, art is not generally a good investment, performing consistently worse than stocks and shares in the long run. Speculating in low-priced contemporary art can be a risky bet that rarely pays off. What Peter Watson discovered 20 years ago in his study From Manet to Manhattan: The Rise of the Modern Art Market is valid even today: Over a long term, investment in art performs about half as well as other types of investment.
　　


　　Art meets finance
　　This state of the art scene explains why it is so difficult to collect money for art funds and administer them profitably. The idea, however, is captivating. Why not combine business with the love for the sublime? Because, said Anders Petterson of ArtTactic, it hardly works!
　　“These two worlds do not speak the same language. Finance has the money but not the art expertise and the art experts do not have the money,” Petterson said at the seminar“Innovations in Art Investment 2011: Trends Risks and Opportunities,” held at the London Business School in February 2011.
　　The only player doing reasonably well on the market, the London-based Fine Art Fund(FAF) headed by Philip Hoffman, is asking for a minimum investment of $500,000 but offers to lend prestigious works of art to the investor for a period from six months to 10 years. For five years FAF ran a fund reserved for Chinese art and antiques which started distributing capital to investors in December 2011. The FAF in Western art boasts an average annual return on assets sold worth 34 percent and cash-oncash return as high as 55.88 percent.
　　But it’s not just the super-rich who are flirting with art as investment. Following the example set by the Paris Art Exchange, the world’s first company to transform works of art into shares traded on a stock exchange, the Tianjin Cultural Artwork Exchange opened its gates one year ago. In a way, it fulfills the old dream of bringing art to the people: Sliced into digestible chunks, paintings worth 6 million yuan ($947,000) are transformed into 6 million shares. An investor who buys up to 67 percent of an artwork can require the purchase of the remaining shares from the other investors.
　　Finally art arrived to the everyday economy, trading like a commodity on the stock exchange. Art collectors, meanwhile, face questions over the performance of their high-priced masterpieces.
　　Britain’s Barclays Bank was keen to know the secret to art’s success. Back in 2005, analysts checked all kinds of assets from the World War II(1939-45) through 2004. They found the performance of tangible assets, including those in the art market, depends primarily on the actual growth of the economy, while performance of stock depends largely on inflation. Market performance for art is best during high development and high inflation, but it is also strong during high development and low inflation. The performance for art is worst during low development and high inflation.
　　The economy in the United States and Europe remained weak in 2011, and so did their art markets. The prosperous art market of China instead fit perfectly into the Barclays prediction, as its economy continued to maintain a high growth with a high inflation rate. China is set to keep its leading position in the art market. Keep the boom times going, but please don’t cut the art into shares.