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The China Syndrome

ART & FINANCE by Alessandro Secciani
FONDI&SICAV Director

The slowdown in China is now a given matter of fact. The Gross National Product has dropped over the last five years from growth levels of over 10% to the current 6.5-7%, with even bleaker forecasts issued by some analysts. In any case, apart from the mere fact that for such an enormous economy as the Chinese economy it would have been unthinkable for the country to have progressed at the same levels of economic development as the levels enjoyed over the last few years. It is however undeniable that the negative elements within the country of the Dragon are actually prevailing upon those more positive elements to the very point that nowadays nobody is speaking anymore of the Asian giant as the locomotive of the global economy. Over the last decade, most industrial sectors have grown thanks above all to Chinese purchasing power but for around a year now this has been happening on a much smaller scale and those companies that were making profits from Chinese business are now in some considerable difficulty.
Will the same be happening on the art market? Indeed, the Asian giant has unquestionably shown itself to be at those very same high levels over the last few years to the point that around half out of ten of the most important auction houses in the world is Chinese. Sometimes, in their headquarters in Shanghai or Beijing, works have achieved such high hammer prices that have been out of all proportion to reality.
Can this trend continue? Frankly, we have to doubt this, even on account of reasons that are not so necessarily tied to the slowing down of the economy. Let’s look now at the main reasons.
The Collapse of the Stock Exchange. The Shanghai Stock  Exchange Composite Index (SHCOMP) – the main Chinese stock exchange index – listed 2016 points in July 2014 whilst exactly a year later it touched on 5,200 with a speculative bubble of the rarest of intensities that later burst out of all seeming control. At the beginning of October the listings had reached around 3,050. Normally, the art market is more or less linked to the progress of the various stock exchanges and usually the indexes that measure the progress of different art sectors follow the main shareholder benchmarks. Even though there may be a gap in China between the progress of the art market and the local stock exchanges there will nevertheless be some sort of negative influence. This will be due to the mere fact that the financial collapse has burnt billions of dollars and even the better-off in China are coming out of such a collapse with their financial bones broken.
The Devaluation of the Yuan. Relatively surprisingly, the Chinese Central Bank has led a series of devaluations of the Yuan against the dollar throughout the summer. There has been an overall depreciation of around 12%. This, in plain terms, means that today a work of art exported to China costs a Chinese citizen 12% more. Considering that most probably this very same person has left a sizeable proportion of his or her money in the Stock Exchange, the loss in value of this money has by no means allowed him or her to invest it in art.
Anti-Corruption Campaign. In a certain sense, this is the most dangerous element for the art market as a whole. For around a year now, the new Chinese ruling class has been setting up an anti-corruption campaign that is pursued with a certain amount of determination to the very extent that even members of the upper echelons of the Chinese Communist Party as well as high-ranking military personnel have been arrested (previously unheard-of, of course!).
The consequences for all luxury goods have been harsh: some top world watchmakers have lost 25% of their turnover in China in only a few months, the same situation being suffered by several companies in the fashion, accessory and largest car-making industries. Even the most famous hotels have lost most of their clientele and a decree prohibiting state civil servants from staying in five-star hotels has spread panic throughout the hotel industry to the point that many hotel owners have applied for the declassification of their hotels to four stars.
In such a climate, art – often having been experienced as a form of ostentation and proof of wealth – has found itself to be right in the middle of such an unfavourable situation.
As a conclusion, one can most probably say that the Chinese market, that had produced a speculative bubble that was hardly very different from the Stock Exchange, will enter deeply into economic recession. Most certainly, after each and every fall there’s a comeback and, in all probability, on a more solid basis than in the past. Not only, it is also probable that today – thanks too to the devaluation of the Yuan and the depressed economic climate – pieces may be bought in China at the lowest of prices the values of which in time are bound to rise. As old Baron Rothschild once said: “You have to buy when everyone’s selling and sell when everyone’s buying”