Lack of confidence leaves buyers and investors out of the frame, reports Zhang Yuchen in Beijing.

Spring has yet to warm the hearts of China's auctioneers. Instead, a chill wind is blowing through the art market. In contrast to recent years, the spring auction season, which began in early February, has been a cause for concern rather than celebration.

Perhaps the auctioneers aren't generating enough excitement as they stand on the podium, gavel in hand, calling out bids, but something special is needed to encourage buyers to up the ante and part with their cash.

This year has seen a huge downturn in both the prices paid for individual lots and the art market in general. The trading volume during the 2012 autumn season, which runs from October through December, fell to 29.4 billion yuan ($4.7 million) from 40 billion yuan in the same period the year before.

The decline in prices and trading volume is symbolized by a true event, recounted by Kou Qin, vice-president of China Guardian Auctions. The story has a humorous ring to it, but it has had a chilling effect on buyers and sellers.

A client of China Guardians, who had bid 10 million yuan for a valuable bronze pot, arrived at Kou's office the day after the deal had been made. The client, from Shanxi province, bid for the objet d' art along with several other items, backed by a large amount of money loaned by a couple of friends. Sadly, he had overbid massively and had nowhere near enough capital to settle the bill for the 10 million yuan antique. He had hoped to sell the other items quickly and at a markup, to furnish himself with the funds for the pot, while making a tidy profit.

However, when he arrived at Kou's office, he was forced to admit that he couldn't afford the item and wanted to return it. Having lost most of his initial capital, the man had fallen out with his friends, who had, in turn, extracted a brutal revenge. He lifted his shirt a little to show Kou the marks and wounds left by the severe beating he had endured from his- now furious friends.

"It sounds quite funny, but it's actually not," said Kou. "It's more like a metaphor for what we've all been through during the last couple of auction seasons."

When the market seemed prosperous, a large amount of money flooded into the pool, but was withdrawn at the first ominous sign, said Guan Yu, director of Art Market Monitor of Artron.

In 2011, 26 individual lots attracted bids of 100 million yuan each, which many observers saw as a giant leap that would transform the local art market into one of the world's largest capital arenas. However, their hopes were dashed when only five items hit the 100 million yuan threshold in the whole of 2012.

Not good enough

"The rapid exhaustion of sources (for works of art) is thought to be the main factor restricting the development of the market and it cast a gloomy aspect over everything last year," said Liu Shangyong, manager of Rongbao Auction Co in Beijing, at an annual forum held by Zhilan Yaji, a club for art collectors and dealers in December.

A shortage of good sources frustrated the auctioneers who were forced to trawl through sources in more than 10 countries in Asia and Europe in their quest for items good enough to place in their auctions, according to Liu.

China's art market has witnessed wide fluctuations in the number of items and prices, hitting a peak in the 2011 spring season when the trading volume reached 42.84 billion yuan. Since then, however, the total amount of cash and the number of sales have declined.

"Awareness of the value of an art work, and the prices people are willing to pay, reflect on the country's appreciation of fine arts," said Liu Xirong, an art investor known for his collection of ancient brass pots. China's economic plan is set in a 10-year cycle, but each international cycle lasts about 20 years. That's troubling, because investment in art works is quite closely linked with the economic cycle, and people's perceptions of value double every time a piece of work is offered for resale."

While China Guardian has managed to keep its head above water, other large auction houses, such as Beijing Poly, Christie's and Sotheby's, saw their revenues fall by around one-fifth year-on-year in 2012, according to Guan.

Overall decline

The hot pursuit of contemporary art seen eight years ago has cooled. Before 2009, the best contemporary works, accumulated and stored during the preceding decades, had been sought and bought by insightful collectors, said Zhu Qian, independent contemporary art critic and curator who is based in Beijing.

Sotheby's Hong Kong suffered its darkest hour during an auction of famous contemporary Asian art when some pieces failed to meet their reserve prices, while others attracted no bids at all.

While traditional Chinese paintings and calligraphic works remain at the top of the list for treasure hunters and accounted for 50 percent of Chinese market turnover in 2012, that can't disguise the overall decline last year, when the value of almost every sector of the art market fell to about 50 percent of that seen in 2011, according to statistics provided by Artron.

A traditional piece of Chinese fine art that sold for 80 million yuan in 2009 could net a staggering 150 million yuan today, but that's only part of the picture. "Despite the rise in estimated prices, I can barely find collectors willing to sell because they have little faith or optimism in the market right now," said Dong Guoqiang, chairman of Beijing Council International Auction Co.

"A lack of confidence in the market is one of the main reasons for this low ebb," said Guan. "Confidence has been tested around the world since 2009, and the global financial crisis was not even of huge concern to the financial market in China at that time."

In years gone by, Chinese collectors paid top dollar for the best items and hung onto their purchases, rather than simply looking to immediately sell them on to auction houses in the hope of increased profit, especially at times when the market appeared highly unpredictable, said Liu Shangyong. "There are simply fewer things worth putting money into than before," he admitted.

But when considering the reasons that make collectors unwilling to sell the pieces they've accrued, people should be aware of the natural laws of the market and the way they balance out over the long term, said Dong Jun of the Forever International Auction Company Ltd, the only auction house on the Chinese mainland authorized to use the registered trademark of Christie's, the world's leading art auction house.

"That is why we have to let the market develop step by step, instead of encouraging an abnormally fast rate of growth," he said.

'The right to follow'

A more recent, and potentially worrisome, development is that of a new policy, known as Droit de suite, or "the right to follow". The policy was proposed by China's National Copyright Administration in March 2011 and is set to go before the State Council at some point, although no time scale has been revealed.

The implementation of Droit de suite in China would allow artists, and their descendants in some cases, to profit from the resale of their works. In most countries where the rule is used, artists benefit to the tune of around 1 to 5 percent.

The proposal has caused a wave of unease among auctioneers who say the imposition of the resale levy will stifle the market. However, the authorities point to the fact that it would prevent the resale of a large number of fakes and push the nation's art market higher up the value chain

In Europe, the system is used to fix the amount paid to the artists as a percentage of the profit accrued by the reseller and not the whole value of the sale, irrespective of whether or not the deal is made through an auctioneer, according to Liu Shuangzhou, a professor at the law school at the Central University of Finance and Economics.

However, the proposal presented to the Chinese authorities calls for the charge to be payable only by auctioneers and not individuals who sell directly from their own collections. It's that aspect of the move that's prompted the dissatisfaction among the auctioneers.

"It is difficult to decide if it's a good way to protect artists and their rights, not to mention the effect it could have on the market and investors," said Liu Shuangzhou. "Experienced collectors will probably only part with really treasured pieces when they become 'must-sell' items."

"An extra payment, especially when its seems like a punishment, will make investors and artists leave the market," said Gan Xuejun, president and chairman of Beijing Huachen Auctions Co.

The lack of general investment options in China is adding fuel to the fire and leaving those with expendable capital with fewer opportunities to put their money in the pool, said Guan Yu. Usually, investors buy and sell paintings and other art works as a means of managing and increasing their wealth, rather than collecting works purely for their aesthetic value.

In coming years, auctioneers should put more effort into raising investors' awareness of artistic value instead of just concentrating on financial gain, said experts.

Contact the writer at zhangyuchen@chinadaily.com.cn

Yang Wanli contributed to this story.

(China Daily 03/29/2013 page6)