A major study on global art investment trends by Citigroup reflects on the astonishing ascent of China as a player in the market - and asks if this growth is likely to continue at anything like the pace of recent times.

China has achieved a “blistering” rate of growth in its art market over the past decade and a half and its global share has also surged but it is unlikely this will continue, according to a report on global trends by Citigroup.

In 2000, more than half of auction sales by dollar value took place in the US, with an additional quarter in the UK. France, the third largest market, accounted for just over 5 per cent. In 2000, auction sales in China were negligible. 

But last year, China moved to account for a third of global growth and, at $4.4 billion, now claims over a quarter of global sales and the number two spot behind the US. 

The rapid growth of China as an art consumer and investor is part of the growth of an affluent middle class in the Asian country, driving not just art sales but areas such as fine wine, classic cars and spending on luxury properties. With China’s stock market and economy decelerating recently – a situation that has hit commodity prices such as oil – such a development may also be a headwind for the art market.

The bank's analysis of global and Asian art market issues is part of a trend of how some firms, such as Citi Private Bank, are developing specialist art advisory and finance offerings for collectors and investors. Citi Private Bank created its Art Advisory & Finance Group in 1979; the whole concept of "art banking" - using art as collateral and for other purposes - is now a more recognised part of the industry. Recently, Pictet, the Swiss private bank, and Carlyle Group, the alternative investment firm, backed a new, standalone art finance and investment specialist house called Athena.

Ascent
The journey for China as an art player has been, despite any present wobbles, dramatic, the bank said.

“Compared to the US/UK duopoly in 2000 which presided over 80 per cent of auction sales, the US/UK/China triad now accounts for 85 per cent. Moreover, the ascent of China has radiated widely throughout the global market,” Citigroup said in its Global Perspectives & Solutions report.

The bank goes on to state that 17 of 29 countries where auction sales took place in 2000 experienced a decline in market share in the wake of China’s ascent – but it says that kind of performance is “unlikely to be repeated in the coming years”.

“The expansion of the Chinese market has been characterised by explosive growth in the quantity of art sold, which is a common feature of the early stages of art market development. As the market matures – and there is evidence to suggest that China has reached close to its ‘equilibrium’ size in the world market – the growth in quantities will moderate, removing what has been a large tailwind to global growth,” the bank said.

“More concretely, if the only change in the art market through 2030 was that auction lots sold in China grew at the rest of the world’s historical growth rate, then annual sales growth of the global market would decline by 2.3 percentage points, or 18 percent, to 10.7 per cent,” it said.

Among other statistics recited in the report, Citigroup said the global auction market for fine art has grown from total sales of around $3 billion in 2000; since then, global auction turnover has grown at an average annual compound rate of 13 per cent, reaching $16.1 billion in 2014.

“[That is] not bad considering that the period was punctuated by the deepest global recession in almost a century. By way of context, in the same timeframe global GDP and exports grew at 3.5 and 8.1 per cent per year, respectively. The art market clearly outperformed, even during a time of solid average growth in economic activity and substantial advances in globalisation,” the report said.

Looking ahead, the bank does not see continued rapid growth in China’s art market.

“The Chinese market, having essentially caught up with the US and UK, will not be a one-way bet through 2030. Moreover, the risk of either a disorderly slowing – or unwinding – of the blistering market expansion in the 2000s or of a broader credit bubble popping suggests a cautious approach to Chinese art,” it said.

“The US and UK markets, in turn, have been boosted by a steady stream of record auction results, driven in part by widening global inequality. While it is difficult to predict when this trend will end, it is worth noting that the US and UK will be far more exposed to the fallout than other mature markets such as France and Germany,” it said.

Auction dominance
The Citigroup report also said that auctions are a particularly dominant part of the China art market infrastructure. 

“It is estimated that up to 70 per cent of the art market in China can be attributed to public auctions — a stark contrast to other, more established markets, where the primary sector is responsible for the majority of sales. This inverse relationship is grounded in the relative weakness of Chinese galleries. While several of them, such as Pace Beijing, ShanghART and Long March Space, are highly regarded and rank among the best in the world, the vast majority simply lack the experience and resources to steer the development of an artist’s career — a task that has, by default, fallen to a few powerful auction houses with more clout and function,” it said.