China reopened its borders on January 8, 2023, after nearly three years of closure due to the pandemic. This much anticipated event served as a significant symbol of renewed global interconnection for the Chinese art market. The convergence of the market’s reopening with the Lunar New Year generated enthusiastic anticipation of a substantial revival throughout the Chinese art industry. The prompt resumption of operations by art galleries, art fairs, festivals, auction houses, museums, and private institutions revitalized the atmosphere, regenerating interest, cultural and artistic activities, and sales.

Despite the complex economic conditions in 2023 characterized by a decline in real estate values, changes in demographics, and global unpredictability, the art market exhibited exceptional fortitude. China’s art market thrived in spite of economic headwinds, reflecting not only resilient demand for purchasing, but also a changing consumer base seeking cultural engagement in a turbulent world.

China’s art market did rebound, and sales increased by 9% despite declining values elsewhere. However, there are a few factors beneath these figures that are important to note. In comparison to prior years, the dominant Chinese auction market experienced a lower frequency of high bidding, facing challenges from its inward-focused nature, market maturation, and consolidation adjustments that have been and continue to be made. Although buyers and sellers were keen to reengage after the difficult operating conditions of 2022, both the auction industry and collectors adopted a cautious attitude towards market transactions. Against this backdrop, there was a noticeable increase in collectors liquidating their artworks to raise funds, while buyers’ purchasing interest decreased. 

In the past, high-profile Mainland Chinese collectors were primarily focused on buying, whereas in recent times, notable Mainland Chinese collectors, including Liu Yiqian and Wang Wei, the couple behind Shanghai’s Long Museum, adjusted their strategies by readjusting their portfolios of assets, including their art collections, amidst changing economic conditions. Engaging in sales during a period of market recovery may have introduced some valuation adjustments and moderated pricing. However, the transactions by collectors in both acquisitions and disposals underscore the liquidity of art as an investment vehicle. Within a volatile asset-pricing environment, certain art collectors adopted an opportunistic approach, preferring to wait and see how the market would evolve rather than making immediate transactions. This enabled them to capitalize on market fluctuations by strategically acquiring assets at undervalued prices and subsequently divesting them at peak valuations.

Selected data from seven major Mainland Chinese auction houses in 2023 revealed that the value of autumn auctions did not reach the same heights as their respective spring auctions. There was a double-digit percentage decrease, totaling 38% on aggregate. When comparing their annual sales in 2023 to 2019, the overall decrease for these seven businesses was 18%. 

The China Association of Auctioneers (CAA)’s study focusing on the 2023 sales of 15 leading Mainland Chinese auction houses showed that there were 445 auction events held, and once the postponed auctions from 2022 were excluded from the data, the increase from 2022 was more moderate at just 6%, considerably smaller than the 14% for the entire Chinese auction market including those sales. Excluding postponed sales, the data from the CAA showed that Chinese calligraphy and painting continued to be the largest sector, accounting for 54% of their total sales by value. This was an increase of 5% from 2022, with this sector playing a major role in stabilizing the size of the auction market for the year.

Unlike other major markets where ultra-contemporary works have seen the fastest growth, in these auction houses, the fastest-growing sector was sales of letters and manuscripts, which saw a significant increase of 113% year-on-year. A collection of over 700 letters written by dozens of renowned scholars such as Wang Guowei, Chen Yinke, Cai Yuanpei, and Hu Shi to the historian Chen Yuan was auctioned for just under 32 million RMB ($4.5 million) at the West Lake Seal Society’s autumn auction in 2023. This represents the largest volume, highest level, and greatest academic and documentary value of scholars’ writings and precious research documents ever to appear in the art market.

Another important finding of the CAA study was that the average price per item sold at auction by these 15 companies in 2023 was notably lower compared to pre-pandemic 2019, and the lowest since 2011. During the auctions, many items sold at or near their reserve prices, suggesting a shift from the pre-pandemic era’s competitive bidding to a more cautious market dynamic. This trend may not necessarily represent a price decline across the entire market, but rather a stabilization or adjustment within certain segments. In February and March of 2023, most auction houses sequentially held the autumn auctions that were postponed from 2022 due to the pandemic. Generally, autumn auctions tend to outperform spring auctions. Despite having a relatively ample collection period for the 2023 autumn auctions, there was instead an overall decline later in the year as noted above, indicating that despite the significant increase in sales earlier in the year, the market may in fact be under considerable downward pressure.

A more thorough analysis of the sales figures for Modern and Contemporary art in China revealed that notable auction houses such as Christie’s, China Guardian, and Poly Auction encountered a decrease in transactions throughout the latter portion of the calendar year. The CAA’s analysis of top Mainland Chinese houses showed that their total sales for Modern and Contemporary art had decreased by 21% from 2019. Also, 90% of the artists achieving stable sales in 2023 were deceased artists, such as Sanyu, Zao Wouki, Xu Beihong, and Wu Guanzhong. Sanyu’s Femme Nue sur un Tapis (1929) achieved a price of $24.2 million at Christie’s, setting the highest record for the year in the Modern category, while 30 of Wu Guanzhong’s works sold for over $1 million, including 22 in Mainland China.

For Contemporary sales, the market is undergoing a transition from the old to the new. Auction houses in Hong Kong and Mainland China have adopted different strategies. Sotheby’s, Christie’s, Phillips, and Bonhams introduced international blue-chip artists to the Asian market through their Hong Kong and Shanghai sales. Christie’s collaborated with Jay Chou to host the Millennium Evening Sale in May, featuring one third of the works by Chinese contemporary artists, setting an influential new trend. Domestic mainland auction houses have been particularly focused on younger Chinese artists born in the 1970s, ’80s, and ’90s, thus driving market expansion and growth inside and outside China. These efforts have notably included artists from the 1970s such as Jia Aili (b. 1979), with Combustion (2016) reaching $4.8 million at Christie’s New York, while domestic sales included Huang Yuxing's Heaven and Earth (2016–2020) for $2.9 million at China Guardian in Beijing.

Additionally, Gao Yu (b. 1981) and Chen Fei (b. 1983) achieved auction sales surpassing $5 million, marking a year-on-year increase of over 200%. Chen Fei’s Stars Pile Up All Over the Sky (2009) fetched $1.2 million at China Guardian in November, setting a new artist auction record. Furthermore, female artists Zhang Zipiao (b. 1993), Sun Yidian (b. 1991), Gao Ludi (b. 1990), and Cui Jie (b. 1983) experienced a doubling in their auction market size in 2023, showcasing a growing demand for their works.

Post-89 and older generation realism artists, in contrast, saw a reduction in their prominence, with a limited list of lead players remaining, including Zeng Fanzhi, Zhang Xiaogang, Zhou Chunya, Mao Yan, Liu Ye, and Zhang Enli. A positive factor driving interest in younger artists and a factor that may help to support the market in the future is the emergence of many new millennial and Gen Z collectors over the past few years, coming from industries such as finance, film, media, and technology. Some of the new collectors studied overseas and returned home with the goals of building foundations and institutional collections, and they chose to work closely with domestic and international auction houses and galleries while building the collections. These collectors not only focus on modern Contemporary art, but also look at treasures from the past and collect them in multiple categories. 

Today’s collectors, unlike their predecessors, confidently and actively support local artists and museums, building comprehensive international art collections that shape the historical narrative for institutional presentations. In January 2024, Chinese collector Fan, born in the 1990s, opened the Whale Art Museum in Singapore by presenting an exhibition of 30 Huang Yuxing and Ouyang Chun paintings. Fan announced that the Whale Art Museum will continue to expand to focus on presenting global Contemporary art. In 2023, Cheng Xindong, a Sino-French collector and gallerist, donated 46 works by 19 artists to the Power Station of Art in Shanghai to help the municipal museum expand its collection to cover artists who were once active in public auctions but are now not covered in the market. Since 2017, Chen has donated over 160 works to local museums and public institutions in China.

Looking ahead in 2024, a profound structural shift could be poised to reshape the Chinese art ecosystem. Historically, the public auction market has been the primary driver of public tastes and artistic trends. However, the auction market is currently undergoing a notable reduction in scale and influence, with a noticeable shift towards localization rather than internationalization. Local art fairs are emerging as the most vibrant category for galleries and a broader spectrum of participants across various provinces. Regional art fairs continue to experience robust growth, with the most prominent local art fairs predominantly situated in first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen. Nevertheless, emerging first-tier cities like Chengdu, Nanjing, and Hangzhou and second-tier cities including Xiamen are actively embracing this trend. In November, Shanghai hosted two of China’s largest-ever art fairs: Art021, marking its 10th edition with 150 galleries and art and cultural organizations, compared to the 29 it had in 2013. Simultaneously, the 10th edition of the West Bund Art & Design showcased 185 galleries, both domestic and international, with 54 of them making their debut at the fair.

Chinese galleries, now with over two decades of history, have primarily concentrated their presence in the two supercities of Beijing and Shanghai, with the number of galleries in Beijing nearly five times that of Shanghai. Beijing’s galleries are clustered in locations like 798, Caochangdi, and Songzhuang, while Shanghai’s galleries adopt a more open and freer layout, found in areas like Moganshan 50, West Bund, Rockbund, and the old French Concession houses. Overseas galleries maintain a robust presence in Shanghai, with Almine Rech, Lisson, and Perrotin galleries situated in the Rockbund area, creating a hub for international art exhibitions. Despite their historical presence, the number of new foreign galleries entering the Chinese market has experienced fluctuations and is now showing a downward trend, suggesting a stabilization in the industry’s growth. In 2023, Japan’s Whitestone Gallery opened its branch in Beijing, while some Beijing galleries, such as Jinge, opted to relocate to the South, including Shanghai and Shenzhen. Recognizing emerging opportunities for market growth in these vital economic centers, Hive Contemporary Art Center established its Shanghai branch. Chengdu and Guangzhou are also emerging as strategic cultural destinations in the Southwest and South, attracting galleries looking to expand their presence in these regions.

China’s introduction of two new biennials, amidst the backdrop of the pandemic in 2020 and 2022, can be understood through a multifaceted lens, incorporating elements of both expanding the art scene and fostering economic and cultural development. The inaugural ‘Harmony Motivation: The First Jinan International Biennale’ launched in December 2020, in Jinan, Shandong Province, and the ‘Super Fusion: Chengdu Biennale’ in September 2021, represent significant strides in China's rapidly growing contemporary art scene. The geographical diversity of these biennials, situated in different regions, reflects China's vast artistic diversity, and offers artists from various areas the opportunity to participate in larger, more prestigious events. Economically and culturally, these biennials serve as catalysts for boosting tourism and economic activity and also play a crucial role in enhancing China's cultural image and influence on the global stage, a strategic move to solidify its position as a major cultural player. The establishment of significant new cultural institutions, such as the Chengdu Tianfu Art Museum and the Chengdu Museum of Contemporary Art, in conjunction with these biennials, further underscores the commitment to expanding the art market and supporting the arts.

This expansion and support of the arts, guided by both cultural goals and economic incentives, reflect a comprehensive approach to nurturing the art scene in China, beyond the auction market which has dominated the market to date. The introduction of new biennials, art fairs, and auctions amidst the challenges of the pandemic not only demonstrates resilience but also a strategic vision for integrating cultural development with economic and social objectives, marking a significant step in China's journey towards achieving its cultural and artistic aspirations. 

However, looking ahead to the market’s performance in 2024, the economic context presents several challenges. According to the IMF’s World Economic Outlook in 2024, after exceeding forecasts with a robust 5.2% growth in 2023, the economy is anticipated to moderate to 4.6% in 2024.

Although a recovery path is anticipated for China’s economy, it confronts significant uncertainties that cloud its future trajectory. In 2024, the economic environment surrounding the art market in China will continue to be laden with unpredictability. Multiple factors obscure the path towards continued growth, encompassing persistent challenges in the real estate sector, a decline in the birth rate, persistent deflationary pressures, and recalibrated consumer and business sentiments. These challenges are set against a broader context of escalating geopolitical tensions, domestic financial market volatility, and changing international trade patterns.

The impact of the real estate market has been a particular concern. The inability to sell real estate investments or only to do so at a significant loss in China has potentially had several interconnected consequences for both the economy and the art market. Real estate, which was always seen traditionally as a stable and tangible asset class, faced challenges due to a variety of factors including overvaluation, oversupply, regulatory changes, and a broader economic slowdown. When investors find themselves unable to liquidate real estate assets without incurring heavy losses, they often turn to more liquid investments to free up capital. The art market, by contrast, has demonstrated a certain level of liquidity and resilience even in the face of economic headwinds, as evidenced by the activities and strategic shifts of collectors and investors during 2023.

Some investors seeking liquidity might have sought to reallocate funds from real estate to alternative or more liquid assets, which in China, included art. This shift may have helped to temporarily buoy the art market but also exposes it to volatility as these investments are subject to different market dynamics and speculative pressures. The influx of capital into the art market from real estate can also lead to increased volatility. Prices for artworks may rise rapidly, driven by speculative buying, only to fall if these investors rapidly exit the market to realize gains or if the broader economic conditions worsen. Economic uncertainty and the search for liquidity can lead to a shift in collecting behavior, with collectors possibly divesting from their holdings to free up capital. This was observed in the behavior of collectors like Liu Yiqian and Wang Wei, who adjusted their art asset levels in response to changing economic conditions. The need for liquidity may force sellers to accept lower prices, leading to valuation adjustments in the art market. This can create opportunities for buyers but may also result in a general market recalibration of art prices.

Another issue that could constrain the market is that the financial strain from the downturn in the real estate market may continue to lead to a reduction in consumer spending, including on luxury goods and art, which could depress demand, particularly for less established artists or less sought-after pieces. As real estate values decline and investors face losses, banks and financial institutions may tighten lending standards, affecting the availability of credit for both businesses and individuals, again potentially leading to reduced investment in art and other non-essential sectors.

Apart from these financial implications, there are also a number of unintended potential consequences. A focus on liquidity might unduly emphasize short-term gains over the long-term cultural and intrinsic value of art. This could impact the support for emerging artists and the development of innovative art forms. The art market's resilience and liquidity could lead to art being viewed primarily as an investment vehicle, potentially distorting artistic values and priorities within the art community. Finally, the ability to invest in art as a liquid asset is typically reserved for the wealthier segments of society. This could exacerbate economic inequalities, as those with the means to invest in art can potentially safeguard and grow their wealth, while others face the brunt of economic downturns.

Real estate market issues could be both disruptive and supportive as an alternate form of investment. Investors turning to the art market as a refuge from real estate could expose the art market to the same cyclical risks that affect the real estate market, leading to heightened sensitivity to economic downturns. It is crucial to tread carefully, ensuring that any potential diversification into the art market is undertaken with a thorough understanding of its unique risks and characteristics.

The Chinese art market, relatively nascent at just over 30 years old, presents a unique case in the global context of art as an asset class. Unlike in the West, where capital for art investment has been accumulated over generations and supports a stable buy-and-sell environment, China’s art market capital is much more susceptible to fluctuations due to its youth and the rapid pace of economic changes within the country. The vulnerability of new capital entering the market annually to shifting economic conditions—exemplified by the recent downturn in real estate values—highlights the precariousness of treating art purely as an investment. The liquidity crisis in real estate in 2023, pushing investors towards seemingly more liquid assets like art, underscored the art market’s resilience yet also its exposure to speculative volatility. This situation illuminates the unique dynamics of the Chinese art market, where the limited number of artworks with potential for value appreciation and the rarity of great art coming to the public market further complicate the investment landscape. The focus should, therefore, be on nurturing a mature understanding of art’s intrinsic and cultural value beyond its speculative investment potential, recognizing the distinct challenges and opportunities in China’s evolving art market.