China is the world’s second largest economy and its GDP has grown steadily over the last three decades since it opened up in the 1980s. China’s real GDP grew at an average rate of 7.45% from 2011 to 2018 and exceeded 90 trillion yuan for the first time in 2018. Although China’s real GDP growth slowed to 6.6% in 2018, the International Monetary Fund forecasts China’s real GDP growth to be 6.3% and 6.1% in 2019 and 2020, respectively, while the forecast for global economic growth is 3.3% and 3.6% for the same period according to the latest released “World Economic Outlook” in April 2019.
According to “2019 China Private Wealth Report” published by China Merchants Bank and Bain & Company, in 2018, the total size of investable assets held by individuals in China reached RMB 190 trillion yuan (approximately $27.74 trillion), and the compound annual growth rate reached 7% from 2016 to 2018. It is estimated that by the end of 2019, the total size of investable assets would reach RMB 200 trillion yuan (approximately $29.20 trillion).
In addition, in 2018, the number of high net worth individuals in China with more than RMB10 million yuan (approximately $1.46 million) investable assets reached 1.97 million, and the compound annual growth rate from 2016 to 2018 reached 12%. It is estimated that by the end of 2019, the number of high-net-worth people in China would reach 2.20 million.
In 2018, each of the China’s high-net-worth individuals on average held about RMB 30.80 million yuan (approximately $4.5 million) of investable assets and held a total of 61 trillion yuan (approximately $8.91 trillion) of investable assets. By the end of 2019, high-net-worth individuals are estimated to have a portfolio of investable assets of RMB 70 trillion (approximately $10.22 trillion).
The rapid accumulation of personal wealth and increased population of affluent individuals in China have stimulated the market demand for investment in collectibles and the art market.
Introduction of Collectibles Trading in China
China was one of the first countries in the world to use currency, approximately 5,000 years ago. China began using the stamp over 170 years ago. Since ancient times, due to its unique cultural and collection investment attributes, collectibles have had high value and are cultural bridges that communicate beyond international borders.
Collectibles can be considered separately, usually referring to post, coins, and magnetic cards. There are many commonalities in the collection and trading of post, coins, and magnetic cards.
Post refers to philatelic collections, which comprises 5 categories, including stamps, postage seals, philatelic commodities, philatelic tools, and philatelic collections, based on 5 major categories and subdivided into 28 industry segments. The number of stamps issued determines the price of the stamps of the current year, but for the stamps of previous years, the price will be preserved and even increased year after year due to the historical value carried in it and the scarcity after the gradual withdrawal from the market. This provides an attractive attraction for post collection and investment.
The coins category covers 8 sub-categories of gold and silver ingots, gold and silver bronze, ancient coins, historical banknotes, historical spending, modern banknotes, modern gold and silver coins, foreign coins, and 28 industry segments.
Ordinary commemorative coins were first issued by the People’s Bank of China in 1984. As of the end of 2018, 111 species had been issued. Precious metal commemorative coins, first issued in 1979, now include a total of more than 10 series of more than 2,000 varieties of gold and silver commemorative coins. According to the data of the People’s Bank of China, since 2001, the circulation of precious metal commemorative coins has been on the rise. From 2001 to 2009, the circulation was relatively stable, ranging from 2 to 3 million. In 2010, it rose to 3.37 million, and in the next two years, it almost doubled, reaching 13.83 million in 2012. Subsequently, the circulation remained stable for nearly four years. In 2018, the circulation increased again to 18.42 million.
The magnetic cards category is mainly based on various types of cards. Due to the short period during which cards have been generated, the rise of IC cards and magnetic cards is relatively rapid, and the collection value is limited, so the collection of modern cards is relatively low. Based on the Tamura card, magnetic card, barcode card and IC card, it is divided into 11 industry segments.
After years of development, the collectibles industry has formed a relatively complete industry division, and because of the long-standing active people in the industry, such as enthusiasts, collectors, and experts, it has promoted the long-term rapid growth of the collectibles industry and the stability of industry value accumulation.
The booking and sales channels of collectibles are mainly based on the national outlets of China Post, the People’s Bank of China and China Telecom. These issuers have been working hard to expand sales outlets.
For a long time, as a healthy and low-cost cultural activity, philately has flourished. The demand for exchange of collectibles between collectors has gradually become the driving force behind the offline market. People have established relatively standardized fixed-place trading markets in various places. There are more than 100 collectibles trading markets in all parts of the country (centralized offices, with more than 20 postal business locations), in 27 provinces, autonomous regions and municipalities in Beijing, Shanghai, Guangdong, Shanxi, Henan, and other locations. Representative companies are Shanghai Lugong Collectibles Trading Market, founded in 1983, and Beijing Madian collectibles trading market, founded in 1987.
Relying on these collectibles markets, nearly 20,000 postal merchants are engaged in collectibles transaction related businesses. In this group, about 100,000 employees constitute the core of the collectibles offline trading market. Since most postal merchants operate on a family basis, detailed transaction data is difficult to obtain. According to the analysis of the scale data statistics and the sampling of business data by the YOUBAO APP, it can be estimated that the national offline collectibles transaction in 2017 was around RMB 100 billion.
As a relatively traditional industry, the application of collectibles to information technology is relatively backward. Since 2004, the market has begun to take the form of a forum to provide information services to practitioners. In 2013, with the help of mobile Internet technology, collectibles ushered in a leap-forward transformation, the main event of which was the emergence of a collectibles online trading platform. In 2013-2016, the online transaction market of collectibles increased from an initial 200 million yuan to 3.9 trillion yuan, and the number of listed products increased from the initial single digits to 4,474.
Introduction of Art Trading in China
The Chinese art market in the modern sense began with state-owned cultural relics stores, which were dominated by the planned economy in the late 1970s. Compared with the history of several major Western auction houses over 200 years, the 40-year history of the Chinese art market is relatively short-lived. The first batch of auction houses in China appeared in the 1990s, including Duo Yunxuan Auction (1992) and Guardian (1993). These auction houses began to auction in accordance with the laws of the market economy.
However, the art market in China has achieved extraordinary growth over a 40-year period, becoming the second largest market in the world. Its two largest local auction houses, Poly Auctions (founded in 2005) and China Guardian (founded in 1993) are now ranked as the third and fourth largest auction houses globally, after Christie’s and Sotheby’s.
According to the report of “The Art Market 2019” released by Art Basel and UBS in March 2019, sales in the global art market in 2018 reached $67.4 billion, up 6% year-on-year. This second year of positive growth brought the market to its second-highest level in 10 years, and has advanced sales values 9% over the decade from 2008 to 2018.
Sales in the three largest markets – the US, the UK, and China – accounted for 84% of the global market’s total value in 2018. The US was the largest market worldwide, accounting for 44% of sales by value. The UK regained its position as the second-largest art market (21%), while China was the third largest, with 19%.
The Chinese market has seen the most volatile growth of all the major markets over the past decade. The market barely registered in the distribution of global sales in 2000. However, since 2006, when it overtook France as the third-largest art market worldwide, China has been consistently in the top three global markets and is by far the largest market in Asia. After a boom in sales from 2009 to 2011, when other markets were struggling to recover from the fallout from the global financial crisis, China temporarily became the largest global art market, with sales of $19.5 billion. This came to an abrupt halt in 2012, with a sharp contraction in values of 30%, followed by slow and declining sales up to 2016. While the market rebounded in 2017, the dominant auction sector struggled in 2018. Demand was still strong for the highest-quality works, but supply at this level continued to be an issue. Meanwhile, a looming debt crisis and other economic issues dampened demand, leading to a cautious climate for both buyers and sellers. Sales reached $12.9 billion in 2018, a decline of 3% year-on-year. Despite this, Chinese sales have seen the largest advance of any major country over the past 10 years, growing more than 130% between 2008 and 2018.
Since 2012, the annual turnover of domestic auction houses in mainland China has fluctuated by approximately 30 billion yuan. At present, China’s economic growth rate (about 6%) is still higher than the world average (about 3%).
According to a 2019 Art Basel & UBS Report, in 2018, global online art and antiques sales reached an estimated $6 billion, an annual growth rate of 11%, accounting for 9% of global sales. 93% of millennial high-net-worth collectors reported that they had bought from an online platform, compared to a majority of baby boomers who had not bought art online before.
According to “The Art Market in 2017” released by AMMA and ARTPRICE, today, 97% of the 6,300 auction houses worldwide are present on the Internet (versus just 3% in 2005). Mobile Internet is a powerful factor of economic disruption and it is prompting auction operators to modify their traditional business models.
As a formal concept, Art Internet appeared in the public eye in 2014. On December 27, 2014, independent scholar Wang Wei officially proposed at the first Art Internet Conference, which led the art industry to formally enter the “Internet +” era. As an important branch of China’s Internet development, Art Internet is essentially an industrial Internet, which mainly includes art media, art society, art e-commerce, and other forms of art and Internet. Art Internet combines the primary, secondary and tertiary markets in the art market.
Today, more and more traditional art dealers are aware of the use of the Internet and e-commerce to promote business. Therefore, this business has slowly grown and integrated with traditional intermediary businesses, and thus has penetrated new consumer groups. This makes it easier to form a closed loop of the art market. But in fact, there is an inconspicuous “gap” between the online and traditional markets. That is, the main body of art traded by the two has high and low ends, and the price and circulation are completely different.
According to the category of art works, the current domestic e-commerce models can be divided into four main types.
Under the first model, an auction is organized by an art auction company to determine the work bottom price, then conduct an online auction. The second model is to provide a trading platform without directly intervening in the trading behavior. Most art e-commerce companies use this method. Under the third model, the artist works with the website, the artist submits the work to the website and sells it online. After the sale, the two sides will share the profit from the sale. Finally, the fourth model is to set up an online gallery to promote the painter through the website, and conduct sales through remote mail order or directly to customers.
We expect that in the next few years, especially in the fields of art-related e-commerce services, home services, life services, art education, art appreciation, and art galleries, the importance of art-based forensic systems and art brokerage platforms will greatly increase.
Drivers and Challenges of Online Collectibles and Artwork Trading Market
Increasing population of affluent individuals and demand for new investment products
The steady increase of per capita disposable income and individual investable assets have stimulated the market demand for personal investment products and services. Moreover, there is a general desire among individual traders to diversify from traditional investment channels, such as stocks, real estate and wealth management products issued by banks, to new investment products, such as trust products, online money market, peer-to-peer lending, crowd funding as well as online collectibles and artwork trading.
China’s rapid development of telecommunication infrastructure has increased nationwide internet access and facilitated the popularization of digital mobile devices, which have contributed to the expansion of the Internet user base (“netizens”) population in China.
According to China Internet Network Information Center, or CNNIC, as the end of 2018, China had a total netizen population of 829 million and an internet penetration rate of 59.6%. Total mobile internet users increased from approximately 117.60 million in 2008 to approximately 816.98 million in 2018.
In addition, the mobile internet users as a percentage of total internet users increased from 39.5% in 2008 to 98.6% in 2018, signaling the expansion of the mobile internet community.
The growing netizen population, the advancement of internet technology and the development of third party payment platforms have facilitated the development of e-commence. As of December 2018, the number of online shopping users in China reached 610 million, with an annual growth rate of 14.4% and is 73.6% of total netizen population.
The number of mobile online shopping users reached 592 million, accounting for 72.5% of mobile Internet users, with an annual growth rate of 17.1% in 2018 comparing to 2017. The development of the e-commence market has accelerated the general public’s acceptance of online collectibles and artwork trading as an online product.
More open and international collectibles and artworks markets
In 2000, the “Recommendations for the 10th Five-Year Plan for Economic and Social Development” first proposed the development of cultural industries. After 9 years, a cultural industry revitalization plan was issued, marking the rise of China’s cultural industry as a national strategic industry. In 2013, the Third Plenary Session of the 18th CPC Central Committee proposed to establish a sound modern cultural market system, marking the transformation of China’s cultural industry to achieve the development of dynamic mechanisms. The 2017 19th Report further elaborated on the cultural construction of the new era. The construction of “One Belt, One Road” provides an opportunity for our cultural industry to go global. We have a long history and rich cultural resources, and have the infinite charm of cultural diversity. It is our historical mission to spread Chinese culture to all parts of the world and to tell the Chinese story. The development of an international cultural market has enormous potential and space.