Global Art Market As Bubble Meter, China's Fast Expanding Role

Even in the global art markets, the Chinese growth juggernaut appears to be shifting the playing field in her favor.

This from the Economist (bold highlight mine),

"LAST year China overtook France as the world’s third-biggest art market after America and Britain. Thanks to shifts in policy, which once banned owning, inheriting or exchanging pre-communist works, Chinese buyers are now catching up in a big way. More Chinese treasures are now sold at auction in Hong Kong than in New York, London and Paris. At Sotheby's in Hong Kong last month a world record for a piece of Chinese furniture was set when a Qianlong-period throne made of precious zitan wood and carved with dragons fetched just under HK$86m ($11.1m)."

In short, the liberalization of the marketplace and global wealth transfer dynamics have been key forces driving China's race to the top. That's the good news.

But here's the bad news.

This growth market may also reflect on bubble policies.

Since art is a luxury item, a booming art market could be indicative of inflation fueled consumption excesses.

As with Japan's experience in the late 80s, whose buyers "swept the Western art markets", according to wikipedia.org, China's prospective assumption of the dominant role could likewise be ominous of a bubble top.

This hasn't been limited to Japan, in the list of the most expensive paintings ever sold (artwolf.com), here are the top 5:

1. JACKSON POLLOCK: "Number 5, 1948", 1948

$140 million

Private sale, 2006. Seller: David Geffen. Buyer: David Martínez (claimed)

2. WILLEM DE KOONING: "Woman III", 1952-53

$137.5 million

Private sale, 2006. Seller: David Geffen. Buyer: Steven Cohen

3. GUSTAV KLIMT: "Adele Bloch-bauer I", 1907

$135 million

Private sale, 2006. Buyer: Ronald Lauder.

4. PABLO PICASSO: "Garçon a la pipe", 1904

$104.1 million

Sotheby's New York , May 2004. Buyer: anonymous

5. PABLO PICASSO: "Dora Maar au chat", 1941

$95.2 million

Sotheby's New York , May 2006. Buyer: anonymous

It could be observed that four out of the five most expensive paintings were transacted in 2006.

These had incidentally been at the pinnacle of the US housing bubble as shown in the Case Shiller chart above!

Bottom line: The art markets could, most likely, serve as one important bellwether to estimate on the whereabouts of a bubble cycle.