China's Crash Effect on Art Market: Could China's Stock Market Collapse Bring Down the Global Art Market?

July 31, 2015

China's having a hard time with its stock markets, as Monday was the worst day since 2007. But, how this China's crash will effect the art market? On July 27 2015, the Shanghai Composite Index dropped for 8.5 percent, and two other indicators fell 7 percent, with most of the firms losing about 10 percent of their value in one day. The government had intervened for the past 20 days, pumping up the money - it has announced that it will use a fund worth of $120 billion for market stabilization, among other measures.

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During July 27, values of two-thirds of listed companies fell for 10 percent in the second biggest economy in the world.

China's Market Crash Driving Chinese Collectors to Western Art

The new Artnet's report for the first half of 2015 said that the global auction market is in recession, being 6 percent down comparing to the same period of 2014 - the main reason for this slide is a huge drop of activities in Mainland China and Hong Kong, that fell for stunning 30 percent. Yet, at the same time, Christie's reported that in the first half of the year buyers from China had their auction purchasing increased for whooping 47 percent. So, what comes? It appears that the high end of Chinese collectors have turned to the Western world in order to save and diverse their assets during these economic woes. So, instead of buying artworks executed by domestic, Chinese artists, whose prices could be jeopardized in the next period, they are placing their money on - in July 2015, at least - a safe bet, buying some Western Contemporary or Modern art.

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Since June this year, there were no good news from the Chinese stock markets

Japan in 1990's and China in 2015 - Similar Markets, or not?

Now, some similar things that now are happening in China, today's second biggest economy of the world, happened in Japan back in the end of the 1980's. Prior to the big Japanese crisis and bubble burst that sent the then second biggest economy into a serious downward economic spiral and two painful decades of deflation, the leading Japanese collectors started a frantic buying of Impressionist, setting some world records at a time. For instance, Vincent van Gogh's Sunflowers became the most expensive painting in the world in 1987, when it was bought for almost $40 million by a Japanese collector. But just three years later, that record was more than doubled by another van Gogh's painting, and another Japanese collector, who bought Portrait of Dr. Gachet for over $82 million. However, the domestic, Japanese art market suffered drastic value decrease, as it was worth just 10-20 percent of the value before the crisis.

Why this is similar to this new, June-July 2015 (so far) Chinese crisis? Well, because of the reaction of the China's government, that is pretty much the same as was Japan's: pump up the money, buy the shares and stabilize the stock market in the short term. In Japan's case, that led to enormous public debt growth, followed by the reduction of domestic economic demand, export-oriented production and a decrease of prices, or deflation. However, this crash may not have that big of an impact as it seems at this point, when we talk about the art world, since individual wealth of the rich people in China - hence, the collectors, too - is not that much linked with the state of the market. So, instead of seeing the meltdown of the Chinese market similar to Japan's a few decades ago, that would inevitably drag the global art market along, we might see the biggest collectors buying artworks even more, in order to change the currency of their wealth.

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