There has been a lot of commotion, in the art markets, these days, about new art investment vehicles. They include art funds, art stocks, and outside guarantors of auction stock. We even recently commented about art funds, in another piece. In the mean time, we keep hearing about more people jumping into the fray. In China, more and more people seem to be getting into the auction business, which has its shady side, and opening art stock ... << MORE >>

Since I came to China, I have gotten into discussions about insurance on a number of occasions. Insurance is just beginning, in China, but it's not trusted by the people. Indeed, most people who are rich enough to afford a car don't even have car insurance: they just negotiate, sometime for hundreds of thousand of Yuan,  in case of an accident, injury or death.

At the university ...

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Each year, China celebrates one of its most important holidays: Mid-Autumn Day. It occurs in September, on the night of the full moon, and represents the beginning of the Fall. Celebration includes, family gatherings, walks to look at the moon, and moon cake, a cake created just for that day, like fruit cake during the Western Christmas-Chanukah-New Year season.

Moon cake is a big part of the celebration, and stands at department stores ...

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We were recently asked to write an article about the Chinese art market for China Economic Review. The final edited version to fit space is in the September 2011 issue. You can read it at
Painting by Numbers ... << MORE >>

Tianjin Plus Magazine recently interviewed Craig Mattoli about the art market. The interview can be seen on page 23 of the July 2011 issue, which you can download at Tianjin Plus July 2011. ... << MORE >>

An article in Caixin Magazine, lately, presented figures and purported to use purchasing power parity (PPP) to show that the Chinese Yuan (RMB; Renmen Bi = the people's coin) was actually overvalued, not undervalued as the rest of the world seems to think. If we take a closer look at their argument, we can see that it is more like lying with numbers or a variation on the index game played by brokers and fund managers.

In the article, the author uses BMW and Ben and Jerry's ice cream, as comparable items for ... << MORE >>

A recent statistic was released by the Chinese media and later denied by the power companies. The statistic was that 65 million electric meters registered zero usage over the last six months. There have been stories, in both the local and Western media, over the last year or so about all of the unused space, both residential and commercial, in China, as many people discuss the real estate bubble, here. There are whole towns built in the middle of nowhere with no one to move into the offices or apartments. Another truth that has made the headlines during ... << MORE >>

When we first began exploring the teapot art market, in China, we discovered that many artists and dealers set prices of teapot art, relatively and unreasonably high, versus other forms of art, like paintings and traditional sculpture.  As investors in and collectors of art, in addition to being a dealer, in art, we were offended by this practice, which, often, is a phenomenon, in prices of many goods available, in China.

Our response to this overpricing in the teapot market has been multifaceted.  First, we have endeavored to make connections with artists, directly, so, that we know what the prices are from the source.  Then, we have included the art, only of artists whose prices are relatively reasonable.  In addition, we have written several articles about this overpricing phenomenon, published in both English and in Chinese, to try to make people aware and wary.  In the beginning, in fact, we put a link to one of our articles on a tea forum of Adagio Teas, in the U.S, and there were so many complaints from dealers, who were apparently overcharging on teapot prices, that the article was closed by the moderator.

It appears that we are still a thorn in the sides of some teapot dealers because, in the last month or so, we have gotten calls from artists telling us that other dealers are complaining about our prices being too low and that they cannot compete with us.  In the case of one of the artists, we took his overpriced teapots off the website, at least, from the Chinese part of the website, which is the only part that he can read, because he insisted that we make the price four times the price that we had on the site.  We left those teapots on the English version of the site at the original prices that we had on them.  This week we got our second call from an artist, and we told him that the problem is not our.  The real problem is that the other dealers are overcharging on prices out of greed.  If the prices that we charge can earn us a reasonable margin on his art, other dealers could also be satisfied with that level of profit margin instead of insisting that we follow them in trying to rip off customers.  In fact, we even give genuine dealers a discount on our retail price, so, there is no reason for other dealers to complain that they cannot compete with us.  Indeed, we have, on a number of occasions, seen teapot art that we offer at Leona Craig Art, priced by other dealers for as much as ten times the price that we charge.  What those other dealers really mean when they complain about our prices is that they can no longer charge the excessive, rip-off prices for the teapot art that they were accustomed to charging before we at Leona Craig Art entered the market.

As art dealers, we will always get a dealer price on any art, be it paintings or teapots, because it is our business to buy larger amounts of art, to promote, and to sell art, and we get compensated for that either by getting an inside dealer price from artists or by investing, risking our own capital, and holding art for a number of years to make a return on investment from price appreciation.  More generally, it is the business of the arbitrageur to make returns from the differences of prices in two markets, in this case, retail versus wholesale art markets and recognizing emerging artistic talent before others have caught on.  In fact, the teapot artists who we represent, in the Leona Craig Art Gallery, also sell their teapots in the retail market.  As a result, most of them suggest that we charge a lower price than they charge to retail customers because they give us a dealer price, in the first place, and they want us to be able to compete with them in the retail markets, in the second place.

At Leona Craig Art, we want to promote art and the art markets: we do not want to promote bubbles in the art market.  In a country where ethical standards are, in general, lacking, and greed is rampant, we want to stand out, not only for our selection of great art, but also for our integrity, honesty, and fair dealing.  We do not want to end up like those teapot dealers, who are complaining about us, and have our customers come back to us after realizing that they have been ripped off when they find out what the prices should really have been.  Therefore, we will continue to promote only the art of artists who have both artistic talent and ethical practices in pricing their art.

To see our current offerings in teapot art from Yixing China, the capital of Chinese teapot art, please, visit the Leona Craig Art Gallery Teapot Section.

A tactic that I see all too often, in Chinese businesses, is being penny smart but pound foolish.  I see it at the local businesses, in my neighborhood, where the merchants over charge on price and lose volume of business.  They figure that the higher the price, the less they will have to sell to become rich.  I see it at the college at which I teach, where the administration provides a poor educational and play experience for its students, and it has shabby class rooms.  They charge a high price, but graduating students tell me that they tell their parents' friends, who ask., not to send their sons and daughters there.  The school could have an enrollment of ten times its current size, if they would spend some money on enhancing their student's college experience; indeed, that was the estimated size when the project was first done, 6 years ago. 

My most recent experience was a real mind-blower.   I wanted to buy my girlfriend some art books about a number of arts, through the ages.  I was expecting to spend several thousand Yuan.  My first thought was to go to the Guangzhou Museum, down the Street from me, so, I went there, first.  I entered the lobby; told the woman at the ticket counter that I wanted to go just inside the entrance to the book store; and I was told that I needed to buy a Y15 ticket to enter the museum.  I tried to reason with her, but it was wasted breath.  In the end, I went to the other large museum, in Guangzhou, on Er Sa Dao Island, and they called someone from the bookstore to escort me in.  Guess they are not all penny smart and pound foolish, but the vast majority of businesses that I come into contact, daily, are.

As you may have read in our other articles, blogs and reports, there is much dishonesty, fueled by greed, in China.  There are fake DVD’s, software, LV bags, and teapots, to name a few.  Every time, I go to a store or market, most of which do not put price labels on their items, the price can sometimes be as much as ten times the actual price.  Indeed, many Chinese business owners charge too high prices, even to Chinese customers, because they believe that the higher the price, the sooner they will be able to retire: the truth is, usually, the sooner they will be out of business.

Moreover, the rules for establishing a business are tilted heavily against foreigners.  For example, to register a corporation, a foreigner needs to have ¥1,000,000, while a local needs only ¥30,000, and a local can even go lower by doing the equivalent of a DBA for a total cost of around ¥2,000 for fees only.  The red tape, in the case of a foreigner, can take as much as three quarters of a year, too.  Moeover, even if you look at the companies that are listed on the exchanges, in China, the weight shifts from private to government enterprises with less than 50 of about 1,500 listed companies from the private, as opposed to government, sector.

Over the years, we have heard many personal accounts of those who have done business, in China, and some recent experiences cause to write this blog entry.  The first comes from a Chinese person that we work with, in our Leona Craig Art business.  That person had given up a previous partner and entered a new partnership with a friend whom was believed to be in a position to promote the business.  They both did separate things, and our friend believed that there was some synergy.  This week the friend called my protégé and told her that she had discovered that her partner, whom she had taken to the art studio where she gets her art, was going behind her back, getting art, and secretly selling it to her customers.  The same day we read an article (http://bit.ly/89Mez)  about a German advertising company that had set up an outpost, in Beijing, and discovered that seven of its key employees had set up their own company and were siphoning off all of the best contracts.  There have been many similar cases, over the years.

At Red Hill Capital, we have been involved in investing in underdiscovered and inefficient markets for several decades.  We have never been fans of the Chinese stock markets because of the lack of transparency of information, in China, to begin with, and because of the multi-tier stock scheme for Chinese listed companies that gives the least rights to foreign owners, in addition.  Being in country for half a decade, we have heard first hand stories and we have seen those that have made the news, like the Sanlu milk scandal that left their foreign minority owner, Fonterra of New Zealand, out several hundred million.  Just last week, GM would not sell a division to a Chinese company because they did not want to have their intellectual property stolen, in the bargain.  Also, within the last several week, there have been news reports about Chinese spies trying to steal information and technology, in both the U.S. and Germany.  On the other hand, China recentlt arrested the lead engotiator from Rio Tinto of Australia, which supplies China with much needed iron ore. He has been charged with spying and, at the time of publication of this blog entry, has been held in custody for about a month, and the offical charges still haven't been released to the public.  Moreover, his arrest just happens to come after Rio Tinto rejected a bid by the Chinese to buy a large stake in the company. 

As we have said, in a number of reports, we believe that China will not be the economic giant that some think they will.  Those opinions are based on what we see, here, in education and in ethics.  What we do acknowledge is that China will be a big market, and, if they ever open up, in both information flow and fair playing field for foreign businesses, it will be a place for many foreign businesses to set up plants and to give all of these people jobs.  However, the more we see and hear, the more we believe that day is far off, but China should really change their attitude and let it come because we can help, if only they would let us.

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