In the early 1990s, a young American expatriate bought his first contemporary Chinese painting from a Hong Kong gallery. Some of his peers were bemused by the purchase, but having studied in China during the late 1980s, he was perhaps more open to the Chinese oeuvre.

At about the same time, 10,000 miles away, New York-based Ethan Cohen was attempting to sell contemporary Chinese art to a largely uninterested American audience. With parents whose career interests lay in Chinese art and law, Cohen was arguably more attuned to China than other New York art dealers.

“I was trying to be an ambassador for Chinese art,” recalls Cohen, who has an eponymous Tribeca gallery. “I just didn’t know how significant it would become.”

That significance was plainly apparent at a Christie’s auction in November 2006 in Hong Kong, where a work by the surrealist-inspired painter Zhang Xiaogang sold for $2.3m. Then, in late May, a painting by the cynical-realist painter Yue Minjun fetched $2.62m at another Christie’s auction in Hong Kong, several times its estimate. And, days later, at the Poly Auction house in Beijing, a Shi Chong oil painting sold for almost $2.2m.

Today, the American expatriate owns several works of each of the most important artists of the period. He adds that he’s “sitting on a very nice paper profit”. But making money wasn’t his aim. “I bought them because I liked them,” he says.

As for Cohen, the busy gallery owner says: “Now I’m getting calls every day.”

If you view art as an asset class – and many people do – Chinese contemporary painting must rank alongside the most alpha-maximising investments of the past several years. For those with early-mover advantage, the returns have been staggering. Using current auction prices as a yardstick, some collectors’ paintings have appreciated at a compound annual return of about 125 per cent over the past seven years.

It wasn’t like this a few years ago.

“Up until 2000, the market for these paintings was largely limited to foreigners based in Hong Kong or mainland China. It was very much a local art scene, foreigners buying mementos of their time in Asia,” says Henry Howard-Sneyd, head of Sotheby’s in Hong Kong.

Outside of dabbling expatriates, there were a few, more committed, collectors, including the Belgian Baron Guy Ullens and Uli Sigg, a former Swiss ambassador to China. Both built diverse collections now considered world-class. Ullens will soon auction $20m-$30m worth of Turner watercolours to fund further purchases of Chinese art and a museum in Beijing.

But for Howard-Sneyd, it was a Sotheby’s auction in New York in May 2006 that put Chinese contemporary painting in an entirely new relief. “People were shouting and getting incredibly frustrated,” he recalls. “That was the coming of age.”

Now, he says, the interest is global. The Asia-based expatriates have been joined by the Connecticut hedge-fund crowd, European collectors, Asian buyers and a growing number of mainland Chinese. There is also a stirring of interest from galleries, whose imprimatur can solidify an artist’s reputation and prices.

Add to this the recent – and, arguably, late – entry of the British collector Charles Saatchi into the market, and one has another indication of how far the market has come (and may yet go).

Several factors have contributed to the stellar returns contemporary Chinese painting has delivered.

One argument is that until now, the work simply didn’t get enough exposure. Then, once that exposure came, “maybe the paintings were under-priced compared to the international market,” suggests Howard-Sneyd.

What may also be lifting prices is the belief that burgeoning Chinese interest combined with higher incomes will further drive demand.

The idea that the surge in Chinese art prices is inexorable, that a rising Chinese economic tide will lift all boats, is not without merit. Traditional demand for fine Bordeaux wines has been up-ended by mainland Chinese buyers flush with cash, paying prices that have pushed out many European and American buyers.

Similarly, some western collectors have waited out the art market in expectation of a fall, only to see prices rise further.

“If the fascination with Chinese art dies among European and American collectors, you will still have interest in China and other parts of Asia,” says Elaine Ng, editor and publisher of the magazine ArtAsiaPacific, who thinks that only a global economic slowdown would lower prices.

Another factor affecting prices is speculation.

“The problem is that a lot of Chinese people consider art collecting as another way to invest money,” says the Beijing-based independent curator Pi Li.

Many of these trailblazing contemporary Chinese painters – also known as the “millionaires’ club” for their earning power – have painted in styles, pandered to or used iconography that appeals to the western eye, say some critics. One such painter is Wang Guangyi, whose early pieces drew on propaganda posters and Warhol-like imagery to rib nascent Chinese consumerism. His auction prices have now topped $500,000.

More scrupulous is the work of the cynical-realists, whose large-headed, oafishcharacters appear to represent a post-Tiananmen malaise. Yue Minjun is now the best-known of these, though Fang Lijun’s work may soon breach $1m.

Still, what some of these painters are not receiving, says Gao Minglu, a professor of Chinese art at the University of Pittsburgh, is sufficient academic interest to indicate credentials worthy of the global canon.

Tied to this was an interesting development at the Sotheby’s March sale in New York. The auction house, which attempts to track the origin of bidders, noticed that mainland Chinese interest was directed at the social realist (or photo-realist) – and, stylistically, more nativist-painters Wang Yi-dong and Chen Yifei.

This warning bell, however faint, suggests that sophisticated Chinese buyers may eschew more palpably western-leaning work. Others urge caution, too.

“I think a lot of it [Chinese contemporary painting] has been created for the western world but then adapted with Chinese motifs or symbols. That alone is not proof of quality,” says Karl Schweizer, head of art private banking at UBS.

Schweizer recommends that anyone buying Chinese contemporary work measure it by three standards.

First is what he calls “the emotionality of the piece and the aesthetic quality you feel when looking at it”. Next he implores people to remember that art history is global, not geographical, and to employ that global standard when judging a work: “Is the painting innovative, a work of specific art-historical quality and not comparable to anything from before?”

Last, Schweizer tells buyers to imagine themselves 15 years down the road. Ask yourself, he says, the following question: “Do you think your piece will be sustainable?”

The best advice, then, might be to choose your artists carefully. “You have to love what you buy. In the worst-case scenario, you still have to want to live with the art if the market drops out,” says Cohen.

He believes some Chinese painters will have more staying power than others. Zhang Xiaogang’s place, for example, is probably assured, he says. So, too, the New York-based Xu Bing, who works in various media, and who is already an auction market favourite.

For people collecting now, Cohen suggests works by the painters Li Song Song, Yan Lei, Shi Chong and Liu Xiaodong, among others.

Ng also points to Liu Xiaodong, as well as Liu Wei (the elder) and Yu Hong. Like Cohen, she thinks Ai WeiWei’s work is world-class. And she, too, sees a sustainable body of work in Xu Bing’s art, including his playful anglicisation of Chinese characters.

“His work is appreciated by both Chinese and western audiences,” says Ng. “It’s very rigorous but it’s not blatantly Chinese; it’s not for the trophy hunter.”

Given rising levels of interest, divining the Chinese trophy art of the future may require more than mere passion. But for early buyers, the view – for the time being – appears untarnished.

“Those who bought at $10,000 and who now own $1m paintings can count themselves as lucky,” says Howard-Sneyd. “They weren’t thinking of retirement funds; they were buying the art because they liked it.”

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