China and art - the next bubble?
April 26 2011
Picture: The Atlantic
Derek Thompson in The Atlantic asks if China's phenomenal spending in the art market is taking the form of a bubble, and finds a potential answer from Vikram Mansharamani, author of Boombustology - Spotting Financial Bubbles Before they Burst:
Once again, China has surpassed the United States in a key economic number. No, it's not GDP. It's art. In four years, China has zoomed past us from the world's fourth-biggest fine art scene to the world's largest auction market for art.
In the last 20 years, Sotheby's mostly stable stock has experienced four sharp peaks. In the late 1980s, Japan had been "the center of gravity" in the international art market. But its economy imploded, sending Sotheby's stock reeling. Ten years later, the Internet bubble drove another auction boom among Silicon Valley newbies, and the bubble burst again. Ten years later, we watched the same film play out. This year could be deja vu, all over again ... all over again.
The graph they use is a little silly - you could draw the same conclusions from a vast array of stocks that went up when the economy was booming and went down when it wasn't.
There may well be a bubble in China at the moment, judging by the government's increasingly desperate attempts to bring prices under control. But it doesn't take many people to make a bull market in the art world (witness the pre-Raphaelite boom in the 1990s), and I reckon there are enough new Chinese millionaires to keep prices rising for a while yet.