people. Commenting on China’s property market, a recent article by Bloomberg stated that: “China’s property market may be heading into a bubble as the economy’s reliance on real estate reaches a level close to the housing peaks in the U.S. and Japan, according to Citigroup Inc.”. This statistic from Bloomberg is particularly relevant because it compares China’s property market boom to the Japanese property market peak – the collapse of which caused the art market collapse of the early 90′s. With so much money being invested in property and being made from China’s property boom it is highly likely that a significant proportion of the money being spent by the Chinese on antiques and fine art comes from the property boom. It is therefore also highly likely that the ability to pay any debt that Chinese buyers are racking up to pay for their trinkets is reliant on the continued positive progression of China’s property boom.
According to an article in the Sydney Morning Herald by Malcolm Turnbull, “HSBC recently calculated that the total value of China’s residential property market was now 3.27 times GDP, which is nearly twice the peak reached before the subprime crisis in the US and approaching the levels in Japan during its 1980s property bubble.” (Read more: http://www.smh.com.au/opinion/politics/chinese-debt-binge-is-fuelling-a-dangerous-property-bubble-20100615-yd1a.html#ixzz1OS5FPLFB)
Many of the top Japanese investors leading up to the Japanese economic crisis in 1990 ended up with the largest amount of debt as a result of the crisis, and for those that had used their wealth to purchase fine art this meant that they had to sell their assets including the fine art that they had purchased to pay back their debts. As a result, a wave of “bad-debt art” was thrown back into the market and sold at prices well below what the Japanese had paid for them. Because the Chinese have speculated so much on the work of young emerging artists, an influx of “bad-debt” contemporary Chinese art back onto the market would be catastrophic for the reputation and future value of these artists. This is, however, something that is very likely to happen in the near future.
When it comes to predicting the end of the Chinese art price bubble, I would suggest that the current rate of progression cannot last longer than another eighteen months – in other words, until the end of 2012. The most likely cause of the end of the Chinese art price bubble is the bursting of the Chinese real estate bubble which people are predicting will end in the next twelve to eighteen months. If the real-estate bubble doesn’t cause the bust, a massive increase in negative art market sentiment surrounding the work of Chinese artists and the Chinese art market Chinese resulting from an awareness by Chinese buyers that they paid too much for many contemporary works of art – an awareness caused by problems getting what they paid for works of art when they try to resell them at auction auction to fund new purchases.