The bullish Chinese art market is likely to come under increasing strain in the coming months amid the bleak global economic outlook, say dealers and market participants ahead of major seasonal sales in Hong Kong.

Hong Kong's biannual Asian arts sales in the spring and autumn are a major fixture in the global arts calendar, attracting the world's top dealers and collectors to the city, which is now considered the world's third-largest art auction hub after London and New York.

Valuations for top-flight Asian artwork, particularly Chinese contemporary paintings have skyrocketed in recent years, with record-breaking prices for works by blue-chip artists like Zhang Xiaogang and Zeng Fanzhi boosted by speculative frenzy.

A Zeng painting of masked figures fetched $9.7 million this spring, an auction record for any Asian contemporary artwork back then.

Global auction house Sotheby's will kick off its autumn sales this weekend (Oct 4-8), with a trove of Asian art up for grabs including Chinese ceramics and paintings, rare Qing treasures, Southeast Asian artwork, jewelry and watches.

But some market players say demand is waning amid the global turmoil, with prices set to cool after the sustained bull run.

"I have a lot of clients from overseas, from the States and Europe and they don't want to attend the auction because the Dow went down so much," said Kevin Lin, a fine art dealer in Taiwan.

"There will be a lot of unsold pieces, let's say HK$800,000 to HK$3-4 million," Lin said of Chinese ceramics. "Prices are not going to go crazy like before, but stay at the lower estimates."

With the dimming global economic outlook and the flow of credit freezing up in money markets, Sotheby's CEO for Asia Kevin Ching said its earlier total sales estimate of HK$2 billion for the Hong Kong sales could be impacted.

"Bearing in mind what has happened since, we've approached some consignors to see if ... you'd like to lower your reserve (price) or whatever but it's very interesting that the majority of the people that we contacted seemed comfortable or optimistic enough to stick to the original reserves."

Sotheby's shares have dropped 22 percent in the past three months, and 61 percent over the past 12 months.

Ching said strong demand from wealthy Chinese buyers would help prop up sentiment, particularly for top lots like a set of rare Qianlong imperial jade seals and scrolls.

"Our own experience and history has always shown that our market has somehow always succeeded in surviving world financial downturns for at least two-and-a-half-years, in 1987 and 1998."

Reuters

(HK Edition 10/04/2008 page2)