Views & Opinions
Published July 21, 2006

China's nouveau riche turning to art as an investment

Sales at the latest autumn and spring contemporary art auctions in Hong Kong more than doubled to HK$276m


MICHELLE Yu, 36, took her windfall from investing in Chinese Internet companies such as Sina Corp, quit her job as a marketing director for property developer Soho China Ltd and invested in Chinese contemporary art.

Paintjob: Art collector Michelle Yu, 36, poses by Xin Haizhou's painting called 'Change, Sound of Phoniness' that she bought during an auction for 170,000 yuan in her Beijing apartment

In April, the 2002 graduate with an MBA from Yale University School of Management in New Haven, Connecticut, spent 290,000 yuan on two paintings at a Beijing auction. Her goal: To double her money in a year.

'I believe these paintings will be good investments,' said Ms Yu, relaxing on the sofa in her 3,700-square-foot penthouse, which overlooks Beijing's forested Chaoyang Park. 'Whether it's Chinese real estate, club memberships or paintings, I believe there's a tremendous potential for growth at least through 2008 when Beijing hosts the Olympics.'

Ms Yu paid 170,000 yuan for Change, Sound of Phoniness, a wall-size painting by Xin Haizhou, from the Sichuan Academy of Fine Arts, showing four young Chinese with quizzical expressions.

Chinese investors are beginning to collect contemporary Chinese art as they accumulate wealth. Oil paintings, statues and other works created by artists since the 1980s used to sell for no more than US$1,000 a piece a decade ago. Today, they can go for US$600,000 or more.

Sales at the latest autumn and spring contemporary art auctions in Hong Kong more than doubled to HK$276 million (S$56.5 million) from a year earlier, according to Christie's International Plc and Sotheby's Holdings Inc.

Philip Hoffman, chief executive of the Fine Art Fund LP in London, said he may start a US$25 million to US$50 million Asian contemporary-art fund this year after being approached in February by several Korean and other Asian banks.

Mr Hoffman's Fine Art Fund, started in July 2004, buys Western art dating back to the 15th century. The fund delivered a 35 per cent return in the past year, Mr Hoffman, 44, said in a phone interview from London. He said he believes Chinese contemporary art can return a minimum of 10 per cent to 15 per cent.

Finding success

After painting propaganda posters for years, some Chinese artists are beginning to savour success. Beijing-based Yue Mingjun used to live on 400 yuan a month in the early 1990s, selling his paintings for US$100 or less and doing freelance advertising work. Today, he lives on a 1.2 hectare estate near Beijing. He employs a cook and two maids and drives a US$60,000 Volvo sedan.

'I was poor even as recently as 1993,' said Mr Yue, 44, as he puffed on a cigarette. 'But I didn't know it. Everyone was poor then. I just wanted to paint.'

A former oil-rig worker who went on to graduate with a degree in fine arts from Hebei Normal University near Beijing, Mr Yue was influenced by the Tiananmen Square killings in 1989, he said. His painting, Gweong Gweong (Roar, Roar), showing People's Liberation Army jets dropping 'bombs' on a crowd of smiling people in the square, sold for US$636,000 at a Christie's auction in Hong Kong last November, a record then for a contemporary Chinese piece.

'Even we were surprised,' said Ken Yeh, 53, deputy chairman of Christie's Asia. 'We were estimating Gweong Gweong would sell for US$45,000 to US$60,000.' He said the work was bought by a non-mainland Chinese collector. Mr Yue sold Gweong Gweong for US$5,000 in 1994 to a Hong Kong buyer whose name he can't recall.

'Whoever bought Gweong Gweong made a lot of money,' Mr Yue said. 'I just made a little money, but I'm benefiting from the record sale. New commissions for my art are pouring in. I can't paint fast enough.'

The increase in Chinese art prices is attracting overseas buyers. Sotheby's held its first New York sale of contemporary Chinese-Asian art in March, raising US$13.2 million, said Hong Kong-based Henry Howard-Sneyd, 42, managing director of Sotheby's in Asia. 'Western interest in Chinese contemporary art is expanding exponentially,' said Michael Goedhuis, 56, owner of Goedhuis Contemporary galleries in New York, Paris and London.

'I see my collection as a long-term investment as well as, to some extent, a permanent acquisition,' said Richard Born, 48, a New York-based hotelier, who bought some of Mr Yue's works. 'It is simply a matter of supply and demand, which will certainly push the prices of the better contemporary art higher as the enormous wealth continues to accumulate inside China.'

China had 320,000 millionaires in 2005, up 7 per cent from 2004, Cap Gemini SA-Merrill Lynch & Co said in a June report. Contemporary Chinese art is only at the beginning of an upward cycle, Mr Howard-Sneyd said. 'Most contemporary or avant-garde Chinese art, especially by well-known artists, sells for well under US$100,000,' he said. 'China's newfound rich are looking at it as a market because prices are more attractive and there are more opportunities.'

Traditional Chinese brush paintings by famous artists sell for as much as 10 times the prices of contemporary art, Mr Howard-Sneyd said. Paradise of Parrots, a work by octogenarian Wu Guanzhong, fetched 30.25 million yuan (S$6.02 million) in November at an auction in Beijing by China Poly Group, according to Hong Kong-based art magazine Orientations.

China's 4,000 auction houses sold 10 billion yuan worth of art last year, up from 800 million yuan in 2000, said Wang Fenghai, deputy secretary general of the China Association of Auctioneers in Beijing. 'There is no question that rich Chinese are turning to auctions as a way to buy art,' he said.

Boom in prices

Overseas auction houses, including Sotheby's and Christie's, currently are prohibited from holding sales on the mainland. A government crackdown on property speculation may be encouraging some Chinese to switch to art, said Karen Smith, a Beijing-based art historian and author of Nine Lives: The Birth of Avant-Garde in New China, about nine Chinese artists.

The government imposed property sales taxes in 2004 on speculators who sold property within two years of purchase. 'In the past, it was foreign buyers who bought all the contemporary Chinese art,' said Ms Smith, 41. Now, 'most foreign buyers can't compete; there's so much money flowing around'.

Some collectors and critics are concerned that the boom in prices is leading some buyers to overpay for inferior art, which may cause prices to slump as investors shun the works.

'There's a huge demand for what is a rather limited amount of works and the result is that works by less talented artists are put on the market to meet demand,' Ms Smith said. People will 'start waking up to the fact that they have paid a not insignificant amount for less-than-enduring or meaningful works - white elephants in short'.

Collector Zhang Xin, 40, who runs Beijing-based developer Soho China Ltd with her husband Pan Shiyi, agrees. 'Even artists who have never exhibited abroad are beginning to demand prices of one million yuan,' Ms Zhang said. 'These prices are unsustainable.'

Soho China's Beijing headquarters includes a 600 square metre gallery with works by artists including Ai Weiwei, who collaborated with Swiss architects Herzog & de Meuron to design Beijing's Olympic stadium.

Christie's Mr Yeh said prices have room to climb. 'Contemporary Chinese art still has a way to go before we approach prices that are in the bubble range,' he said. 'Prices are really just beginning to go up.'

In her penthouse, Ms Yu said the investment isn't the only attraction: 'When a stock loses value it's worthless,' she said. 'A beautiful painting will always look nice in your living room.' - Bloomberg