Sotheby's and Christie's stay away from sales of Western artists in Hong Kong, choosing to focus on sales that are known to do well in the Chinese market.

The news has been filled this summer with articles ballyhooing the ascent of the Chinese art market, most recently the glowing on the demand for more Western art from Chinese buyers. But while there have been some astonishing sales in China and Hong Kong over the past few years, there are plenty of indicators that point to a market without a firm foundation. It could be that China is just finding its footing — but the country could also be following in the footsteps of Japan in the late 1980s leading up to the art market crash in 1992, when loose money from the huge Japanese property bubble led to astronomical prices for art at auction. Is China really going to live up to the hype?

As in most markets, there are bulls and there are bears. After summarizing the bullish outlook last week, now we survey some of the more cautious perspectives on China's global art-market influence, and the reasons why it might be prudent for Western art sellers to think twice before banking on Beijing.

Yifei Chen's "Double Beauty" sold for $1,980,282 at Poly International in June.

CHINESE AUCTION HOUSES STILL NOT LOOKING WEST

It is reported that both of the largest Chinese auction houses, Poly International and Guardian, are on the hunt for office space in the major Western art hubs, New York and London. However, those familiar with the Chinese art market stress that Poly and Guardian are not looking for space to hold auctions, and they aren't even throwing a sideways glance at Western art. They are setting up shop to more easily seek out the many Chinese treasures that sit in the parlors of American and European collectors, in order to take them back to China and sell them there. Consequently, while their global reach may expand, their sights aren't really on the international art market, but bringing Chinese treasures back home.

NO ROOM TO COMPETE IN CHINA

The difference between the major Western auction houses and their Chinese counterparts is that Christie's and Sotheby's are completely private companies. They are governed by their bottom lines, and they will conduct their business wherever they see dollar signs — be it New York, London, Hong Kong, or Dubai. Poly and Guardian are, at the end of the day, companies firmly anchored to China. Meanwhile, the Chinese government does not allow non-Chinese auctioneers to do business on the mainland. Beyond the monopolies of the country's auction houses, Western auctioneers are dissuaded by the tax situation (art imports are taxed at a hefty 34 percent) as well as difficulties finding sympathetic legal recourse should any part of a sale go wrong. As long as the Chinese state has interests in supporting its own auction houses, it will likely continue to regulate the market in their favor, keeping out the rest of the international market. So China's rise does not necessarily raise all boats.

In March, French art-data company came out with a much-repeated, astonishing figure which concludes China's auction houses did $8.3 billion in sales in 2010, making China the world's largest art market. Even if that claim's logic didn't have huge hole in it — it compares only auction figures, with China's underdeveloped gallery sector left completely out of the equation — China's $8.3 billion in sales mean less to the international market than they would in the U.S. or the U.K. Because Chinese auction houses are monopolistic on the mainland, they sell Chinese art, and their clientele is 90 percent or more Chinese, little of that revenue is being pumped into the global economy. This creates, in effect, two markets for art: the domestic Chinese art market and the international art market (including Hong Kong).

HONG KONG — PARADISE OR MIRAGE?

The exception to the barriers for entry into the Chinese art market is Hong Kong, which is still governed by the same open market regulations it had under British rule. Business seems to be booming — it's a capitalist nexus where West meets East. But an article in the Financial Times added some skepticism to that claim after Art HK this year. "As for the much-anticipated mainland Chinese collectors, while they were present, they were not necessarily buying heavily, and many sales were to Americans or Europeans," the article remarks. It seems that — with some high-profile exceptions like those mentioned by the Times — mainland collectors are sticking to the mainland, and Western collectors are sticking to more hospitable market centers.

Additionally, just because Western auction houses are a presence in Hong Kong doesn't mean they are selling Western art. Sotheby's and Christie's stay away from sales of Western artists in Hong Kong, choosing to focus on sales that are known to do well in the Chinese market — Chinese art, watches, jewelry, and wine, to name a few. The one auction house that has ventured into Western art in Hong Kong, Korea's Seoul Auctions,had a rather mixed bag of results, both setting records and seeing high-profile lots flop.

IS IT JUST A BIG BUBBLE?

Forrest also tackled the question of thehigh prices being fetched for contemporary Chinese artists at auction in recent years. He points out that there are two drivers of the price of a work in China: the value of the work based on the long-term reputation and art historical importance of the artist — built over a long period of time — and the premium put on the work for the prestige of owning work by an artist that is "hot" in the moment. The first is a long-term driver of prices and true value, and is the reason why artists like Rembrandt, Picasso, and Warhol, to name a few, will always fetch high prices at auction. The second is unlikely to be sustainable over the long term, and is the hallmark of a fad-driven art bubble. As noted by Forrest, "Because the value of social status and prestige cannot be qualified or quantified, and because such value is in no way inherently attached to the work of art, the likelihood of the massive prices being paid for works of art by Chinese artists remaining at the level they are currently at is very low." What is in fashion goes in and out with the tides — or with the fortunes of speculative capital.

This trend can also be seen in wine sales — China is quickly developing a taste for the world's finest and rarest fermented grape juice. BothBloombergand theFinancial Timesreported on a potential bubble in the market for Chateau Lafite Rothschild, and remarked that the drive for expensive French wine in China is thought to be a bubble. In June, the FT noted that the Liv-ex Fine Wine 100 Index showed an increase of 40 percent in wine prices over the last three years — the report further showed that the price of fine Bordeaux from the Liv-Ex Fine Wine 50rose substantially more in 2010 than the S&P 500, gold, or crude oil(57 percent for the wine to 13 percent for the S&P 500, 35 percent for gold, and 20 percent for crude). The market for wine, like art, largely resisted the economic downturn in the global economy after the 2008 financial crisis. In China, this was partially fueled by the fact that Hong Kong removed import duties on wines and spirits in 2008. But for how long connoisseurs will continue to pay hundreds of thousands of dollars for 750 milliliters of even the finest French wine is unknowable.