Behind the thriving scene of the Chinese art market -- A research into major market trends at Chinese art market, 2006- 2011 Lifan Gong Student Nr. 360193 13 July 2012 [email protected] Supervisor: Dr. F.R.R.Vermeylen Second reader: Dr. Marilena Vecco Master Thesis Cultural economics & Cultural entrepreneurship Erasmus School of History, Culture and Communication Erasmus University Rotterdam 1 Abstract Since 2006, the Chinese art market has amazed the world with an unprecedented growth rate. Due to its recent emergence and disparity from the Western art market, it remains an indispensable yet unfamiliar subject for the art world. This study penetrates through the thriving scene of the Chinese art market, fills part of the gap by presenting an in-depth analysis of its market structure, and depicts the route of development during 2006-2011, the booming period of the Chinese art market. As one of the most important and largest emerging art markets, what are the key trends in the Chinese art market from 2006 to 2011? This question serves as the main research question that guides throughout the research. To answer this question, research at three levels is unfolded, with regards to the functioning of the Chinese art market, the geographical shift from west to east, and the market performance of contemporary Chinese art. As the most vibrant art category, Contemporary Chinese art is chosen as the focal art sector in the empirical part since its transaction cover both the Western and Eastern art market and it really took off at secondary art market since 2005, in line with the booming period of the Chinese art market. To fulfill the research purpose, an original data-set with 3750 sales records of paintings and prints is created containing 17 top contemporary Chinese artists auctioned within the research period is constructed. In the main data-set, 107 paintings are quickly resold form a sub-data-set. Empirical evidence shows that the transaction center of contemporary Chinese art is shifting back east, and that speculation is an important driver of the market, which consequently leads to a highly volatile market that fails to generate promising financial return. Key words: the Chinese art market, contemporary Chinese art, art investment, auction, speculation. 2 Table of contents Abstract ......................................................................................................................... 1 Table of contents .......................................................................................................... 3 I. Introduction ........................................................................................................... 5 II. Theoretical framework – the art market ........................................................... 8 2.1. The art market structure .................................................................................... 8 2.2. Primary and secondary market............................................................................ 8 2.3. Main players...................................................................................................... 10 a. Artist ................................................................................................................. 10 b. Dealer and gallery............................................................................................. 11 c. Auction house ................................................................................................... 12 d. Collector, investor and speculator .................................................................... 13 e. Museum ............................................................................................................ 15 2.4. Determinant of art price .................................................................................... 16 2.5. Art as investment .............................................................................................. 17 2.5.1. Empirical studies on art investment ........................................................... 17 2.5.2. Methodology............................................................................................... 22 a. Hedonic regression ....................................................................................... 22 b. Repeat-sale regression .................................................................................. 23 2.5.3. Limitation and shortcoming ....................................................................... 24 a. Data ............................................................................................................... 24 b. Transaction cost and other cost .................................................................... 26 c. Comparison to financial assets ..................................................................... 27 d. Psychic return ............................................................................................... 28 2.6. Art market and broader economy ..................................................................... 28 2.7. Conclusion ...................................................................................................... 29 III. The Chinese art market ...................................................................................... 31 3.1. Introduction ....................................................................................................... 31 3.2. Brief history of the Chinese art market ............................................................. 32 3.3. Primary art market in China .............................................................................. 33 3.4. Secondary art market in China ....................................................................... 34 3.4.1. Introduction ................................................................................................ 34 3.4.2. Supply at secondary art market in China .................................................... 36 3 a. Fine Chinese ceramics and decorative art .................................................. 38 b. Chinese painting and calligraphy ................................................................. 39 c. Modern and Contemporary Chinese art ...................................................... 39 3.4.3. Demand at secondary art market in China ................................................ 44 a. Chinese individual buyers ........................................................................... 44 b. Chinese institutional buyers ....................................................................... 45 c. Western buyers ........................................................................................... 46 d. Other Asian buyers ..................................................................................... 47 3.4.4. Distribution channel: auction houses ..................................................... 47 3.5. General context ................................................................................................. 49 a. Macro-economic environment .......................................................................... 49 b. Regulation......................................................................................................... 53 c. Taxation ............................................................................................................ 55 d. Art centers: Beijing and Hong Kong ................................................................ 56 e. Existing problems ............................................................................................. 57 3.6. Conclusion ............................................................................................................ 60 IV. Empirical analysis – Top 17 contemporary Chinese artists ............................ 62 4.1. Data source ........................................................................................................ 62 4.2. Main data-set ..................................................................................................... 65 a. Data description ............................................................................................... 65 b. Methodology .................................................................................................... 71 c. Result................................................................................................................ 72 4.3. Sub-data-set....................................................................................................... 75 a. Data description ............................................................................................... 75 b. Methodology .................................................................................................... 76 c. Result................................................................................................................ 77 4.4. Conclusion ........................................................................................................ 78 V. Conclusion.............................................................................................................. 80 VI. Bibliography ......................................................................................................... 82 VII. Appendix – Sub-dataset ................................................................................... 90 4 I. Introduction There is a conventional belief among Chinese collectors that during troubled times, gold