China’s Monetary Policies Look To Favor Yuan, Gold At Dollar’s Expense: What Will This Mean For Art Collectors & Investors In “Portable China”?
Today, Business Intelligence looks into China’s monetary policies, and how they are increasingly favoring alternate investment vehicles like gold while putting a dent in the US dollar. For investors looking to diversify their holdings into a number of areas to lower risk and exposure to market fluctuations, what will the simultaneous increase in asset diversification, global economic jitters, the ascendance of China and internationalization of its currency have on those who put their money into Chinese assets? The article does a fairly good job of illustrating the long-term effects these market forces will have on these investors as well as China itself:
In a series of recent policy moves and announcements through official channels, or increasingly through indirect ‘economic ambassador’ addressing conferences or talking to western reporters, China’s intentions and ambitions are becoming clearer.
In June, a ‘senior researcher with the ruling Communist Party’ said China should buy more gold because the dollar is poised for a fall and the metal is needed to support the greater international role envisaged for the yuan.
Li Lianzhong, who heads the economic department of the Party’s policy research office, said China should use more of its US$1.95 trillion in foreign exchange reserves to buy energy and natural resource assets.
[A] combination of recent ‘revelations’, including the IMF SDR-bond issue, the Hong Kong Yuan bonds, the doubling of gold reserves, and the “Beijing Put” can only be positive for gold and negative for the Dollar.
If this article is correct, and assets like gold appreciate against the dollar in coming years and the yuan does, indeed, become a more global currency, investors who put their money into China-based assets could benefit greatly. Although physical investments like real estate in China are nothing if not shaky (sometimes literally), portable assets have gained popularity in recent years because they are easy to transport and are a form of “moveable China” that can be kept safely for years until the investor is ready to sell them. One of the most popular forms of “portable China” is, of course, art. While antiquities have traditionally been popular among western collectors and investors over the years, contemporary Chinese art has been seen as a form of portable investment over the last 20 years, with rapid growth seen in the last 5 years. While prices have adjusted along with other asset classes in the last year, we see contemporary art roughly corresponding with China’s economic growth and trending upward — particularly since domestic mainland Chinese collectors are becoming more numerous and home-grown auction houses like Poly and Guardian are gaining ground in the Asian auction market.
As the RMB gains both value in relation to other global currencies, holders of Chinese assets (particularly the portable ones) stand to gain from measures currently starting out, from China’s call for a more flexible world currency, to China’s early experiments with currency swaps, to the growing Chinese buyer base for assets of all kinds. Although individual markets may look like a rollercoaster sometimes — and art is no exception — macro-level issues existing outside of the art world, taking place in the meeting rooms of the IMF and in economic negotiations between two countries’ finance ministries, will inevitably affect the price of all types of assets in coming years — Art is no exception.