State of the art market(2)

While many art dealers in the West come from the art world and have more reasonable expectations regarding investment returns and appreciation cycles, most Chinese collectors lack that background and tend to be more speculative, she says.

Among them is Liu Tao, who runs an apparel factory in Ningbo in the southern province of Zhejiang and who has been collecting art for more than 20 years.

With a shortage of capital for his business, Liu went to almost every auction in Beijing last year, hoping to sell some of his collection.

"I sold only 50 percent of what I submitted at Poly's autumn auction," Liu says, attending his final auction on the last day of 2012. "This time, I sold only 40 percent."

A crackdown by the Chinese authorities on tax evasion on imported artworks also contributed to the gloomy picture last year.

It is reported that art collected overseas - mostly Chinese ink paintings, calligraphy and ceramics - accounted for 30 percent of sales and 50 percent of profits in the Chinese market.

There is no clear regulation on tax on imported artworks, adding to uncertainty in the market.

"It's like a sword hanging on your head that can drop any time," says Ji Tao, a veteran auctioneer in Beijing. "No one knows if they should collect art from overseas anymore."

At the same time, collectors have become more reluctant to sell when prices are falling.

"The real problem is the scarcity of top quality pieces," adds Guan. "As the market slows, the collectors tend to look on, waiting for the next bull market, but 2010 and 2011 were so vigorous that a huge number of the sources have been exhausted. What is left is no longer enough to support market growth."

Poly International went to 16 countries last year to gather works for auction, and plans to visit 18 this year.

However, the slowdown is not all bad for the market's long-term development; with speculators drifting away, it is now left with genuine art lovers and long-term investors, who demand a higher level of quality and service, Guardian's Hu says.

"Everyone sells Zhang Daqian (a prodigious traditionalist painter 1899-1983)," Hu says. "The point now is how to pick a better piece and present its value better. This was not as important when the market was strong. It could absorb almost anything at that time."

Guardian is holding an auction of ink paintings by Zhang Daqian this spring. Although these works are "more on the simple side", their appeal can be enhanced by a different business approach, Hu says.

"We have done extensive research so we can tell clients the story behind the art work, giving the historical context and illustrating its significance in the development of Chinese contemporary traditional painting.

"We used to do nothing other than buying and selling. That kind of general business approach is no longer feasible," Hu says.

With the old sectors showing signs of fatigue, auctioneers are exploring new areas.

Poly International is offering a new category, garden furniture from the Ming and Qing dynasties (960-1911) this spring, banking on the growing number of villa owners in China.

The auction house does business in more than 30 categories, and has recently ventured into private consulting business, "to cope with all kinds of crisis", says its executive director, Zhao Xu.

Second-tier cities that were once considered "too far away" are now being added to the sourcing itineraries of auction houses.

This year, Beijing Huachen Auctions went to the southwestern city of Chengdu and Jinan, capital of Shandong province in the east, for the first time in search of new clients and items to auction.

A close relationship with clients is more important than ever, auctioneers say.

"We have to show more initiative," says Dong Jun, general manager of Beijing Forever Auctions, Christie's brand licensee in China. "We might have backed off from dealing with some people in the past, but not now."

Beijing Forever is also considering setting up new categories, such as limited-edition luxury items and affordable modern art.

With the spring auction season just around the corner, expectations vary widely.

Ching of Sotheby's Asia says he expects "significant growth" this year, based on such factors such as new political leadership, a stronger stock market and looser credit controls from the Chinese government over the past few months.

Zhao of Poly says his company hopes to match 2012 this year, while Guardian is looking for a 10 percent increase in sales at this spring auction over last autumn's.

The smaller companies are more optimistic.

"We expect a 30 percent rise this spring from last autumn," says Dong of Beijing Forever.

AMMA director Guan Yu says: "The worse the market, the more critical the timing is for an auction house to find its legs. If you survive the worst time, you get the best of the next round."