Art gains popularity as passion investment

Art is the most popular form of alternative investments by the Chinese super rich, followed by jewelry, jade, fine wine and watches, according to the annual China Passion Investments White Paper, co-released by Industrial Bank Co Ltd and Hurun Report on Monday.

The report - the second from the Shanghai-based magazine Hurun, which produced various studies on the habits of the country's richest people - was based on the results of a survey of 1,219 dollar millionaires from around the country.

Away from the more traditional areas of investment, such as property and stocks, around 64 percent said they had invested in art works.

The rate is as high as 81 percent among people with personal net assets of 50 million yuan ($8.08 million), and about 78 percent of respondents expressed willingness to invest in arts in the future.

Within art, classical Chinese paintings were the most popular, taking up about 49 percent of all investment.

Porcelain came second, with 36 percent of respondents showing a preference for that as a target of investment, followed by oil paintings, at 14 percent.

Transactions of art works began to soar in China in 2010, with the volume of art investment in the country overtaking that of the United States for the first time, accounting for a third of the world's total.

China remained the world's largest art market in 2011, worth 96.8 billion yuan, 3.7 times that volume in 2008 and taking up about 40 percent of the world's volume, according to the Beijing-based Art Market Monitor of Artron.

"I have noticed two major trends in art collection," said Wang Yannan, the director and president of China Guardian Auctions Co Ltd.

"One is that collectors are becoming younger. The other is that people are starting to talk more about art funds.

"People no longer solely depend on themselves to invest in arts. They invite friends or resort to other financing or leverages to invest in it."

The White Paper found that although only 15 percent of rich people had invested in art funds, as much as 60 percent of them were satisfied with the investment result. About 17 percent of the respondents said they will invest in art funds.

On average, Chinese millionaires started investing in passion investments, or alternative forms of investment, in 2008.

"At a time when the stock market or the property market does not perform as well as before, it is probably the best time for people to turn to alternative investments," said Rupert Hoogewerf, chairman and chief researcher of Hurun Report.

"Having a better understanding of the consumption of these rich people, who have more money to invest, will help boost domestic consumption, which is line with the central government's call," he added.

Insights into the alternative investment demands of China's high net worth individuals also help with trends in private banking, said Xue Ruifeng, the general manager of the Private Banking Department of Industrial and Commercial Bank of China Ltd.

"The characteristics of passion investments allow the private banking industry to tailor different packages for various customers, which reflect the personalized asset allocation service concepts of private banking," Xue said.

The report showed that in fine wine investment, the most important consideration was the vintage of the wine (81 percent of respondents), followed by label (77 percent) and region (66 percent).

"It is usually safer that wine investors seek returns two years after the investment," Xue said.

Gu Guang, the founder of Shanghai Wine Exchange, added: "According to our research, the value of wines surges by 90 percent after three years. In this sense, the longer they hold it, the more valuable the wine becomes."

For watch investment, the most important consideration was brand (for 73 percent of respondents), followed by craftsmanship (62 percent) and country of origin (54 percent).

About 16 percent of the dollar millionaires said they plan to charter a private jet within three years.

The recent annual report on China's Commercial Sector (2011-2012) released by the Chinese Academy of Social Sciences said that the Chinese private jet market will grow at an average annual rate of 20 percent in the next 10 years, although only about 0.6 percent of the world's total number of private jets are registered in China.

The passion investment report said that the number of dollar millionaires in China grew 4 percent over the past year to 2.8 million individuals.

The number of super-rich Chinese, defined as individuals with a personal wealth of 100 million yuan, grew 2 percent to 64,500 individuals, the slowest growth in the past four years.