Date
24 March 2017
Amid China’s economic slowdown, collectors and investors are no longer so enthusiastic about snapping up art works, antiques and precious stones. Photo: Reuters
Amid China’s economic slowdown, collectors and investors are no longer so enthusiastic about snapping up art works, antiques and precious stones. Photo: Reuters

How gearing inflated China’s art market

If you are looking to acquire Chinese art for collection or investment, experts would advise you to take your time.

The mainland art market has been going through a sustained correction over the past few years and it’s unlikely the situation will get any better this year amid the continued slowdown of the economy.

Big auction houses are reporting falling revenues while some smaller ones have dipped into the red, according to local media.

Seasoned buyers prefer to wait for a better opportunity while the inflow of new money has substantially slowed.

The tepid sentiment can be partly blamed on the excessive use of debt during the market’s heyday.

When art prices were leaping by 50 to 100 percent a year and transaction volume was soaring, corporate investors, including those new to the market, borrowed heavily to build their portfolios.

They typically applied for bank loans under the guise of operating needs but in fact spent the money on art works ranging from paintings to precious stones, from antique furniture to porcelain.

Some art dealers referred their customers to lenders and helped them secure bank loans, typically 40 percent of the value.

When the market was active and prices were surging, it was easy money for everyone involved. Interest expense was nothing compared to the handsome profit.

But in a lackluster market like it is today, few are willing to take the risk. Banks are also reluctant to supply the funds.

Individual players with liquidity problems may be forced to cut prices to generate cash for repayment. This deleveraging trend is bound to continue.

With investors playing an increasing role in the game, the art market has become a barometer of economic health, much akin to the stock market.

Picasso’s Tete de Femme sold for 10 million pounds (US$14.25 million) less in January than it did in 2013.

Auctions held by Sotheby’s and Christie’s in February sold a combined US$210 million worth of art, 45 percent less than a year ago.

Just as global economic uncertainties are exerting downward pressure on international art prices, China’s slowing economy will also take its toll on Chinese art.

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CG

EJ Insight writer

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