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 the U.S. from the world’s fourth-biggest fine-art scene to the world’s largest auction market for art. Just last week, Chinese buyers helped Sotheby’s and Christie’s set (yet another) record by bidding up the price of a Chinese vase estimated to fetch $800 all the way to $18 million – a 22,000% mark up!
That’s the kind of fever pitch the Economist captured when it reported “astonishing bidding” by wealthy Chinese across the globe as “record after record has fallen away as newly wealthy collectors from mainland China have piled into sales rooms in London, New York and Hong Kong.”
China’s meteoric rise in the global auction world might be a sign of well-earned wealth. But periods of record bidding are scarily accurate bubble predictors, according to Vikram Mansharamani, author of the Boombustology. They’re a “symptom of overconfidence and hubris” as a newly rich society spends its easy money with exponential flamboyance.
It’s not hard to see signs of froth and fake wealth in China. Housing investment hit the inauspicious mark of 6% of GDP, the same level the U.S. touched in 2006 before its bubble burst. Meanwhile, the Chinese government has spent lavishly on ghost towns like Qungbashi (a city built for 1.5 million residents and occupied by only 20,000) and ghost malls like New South China Mall – built to handle 1,500 tenants but home to only a few dozen.
China’s appetite for fine art isn’t a stray indicator, Mansharamani says. It’s a tell-tale clue from a disaster movie we’ve seen play out at least three times before.
Sotheby’s Stock: The World’s Alarm Bell
Let’s go back to the halcyon days of the U.S. bubble. In November 2006, David Geffen, the producer of Cats and co-founder of DreamWorks Pictures, sold No. 5, 1948 by Jackson Pollack for $140 million, making it the most expensive painting ever sold. Two weeks later, he nearly broke his own record, unloading Woman III by Willem de Kooning for a cool $137 million. These paintings broke a six-month record set by another New Yorker, Ronald Lauder, who had bought a Gustav Klimt portrait for $130 million for his Neue Galerie. It was a very good year for auctions, stocks, and CDOs.
It was also the end of an era. It’s no coincidence that these auctions occurred near the frothy tip of a credit bubble, Mansharamani says. In fact, tracking auction records and auction house stock is one of the best ways to smell out a simmering economic crisis.