It's a good time to be a contemporary artist in China. Rapid changes in society, driven by a thriving economy, have fueled creativity and strong high-end demand. As a result, China is now home to almost half of the world's 100 top-earning contemporary artists. 

Chen Yifei is one of them. In May, his large oil painting Wind of Mountain Village went under the hammer for almost 69 million yuan ($11 million). It set a record for Beijing at the time, according to Artprice, a French company that tracks global deals. This, and other purchases, have boosted China, in economic terms, to the top of the fine-art marketplace. But should this feat be applauded or rather a cause for concern? Valuating the contemporary Chinese art market purely by auction sales would be like judging a book by its cover. The art scene certainly lies deeper than that. In fact, much of the business is conducted though private, underground dealers or galleries, making it difficult to determine the real value of an art work. Given how quickly the market has risen, could it all come undone after a sudden price check? 

Real price questions 

The Chinese contemporary art market is still very thin. Don Thompson, professor of marketing and economics in the MBA program at the University of Toronto, recently wrote in The Art Economist that a significant chunk of the top of the nation's contemporary art works has been purchased by a handful of wealthy mainlanders (including Zhang Rui and his wife (see profile right). They are known as "super collectors" and are subject to follow-the-leader style behavior. If these families were to find a new passion, would it affect market prices? 

Western demand for contemporary Chinese art is small, but growing. A strong indication that the market is expanding beyond borders is the structural choices made by Chinese auction operators. China Guardian Auction Co Ltd, the second-biggest auctioneer in terms of revenue last financial year for instance, opened its first overseas office in New York this month. "We are taking the American market very seriously," said Li Yanfeng, the auctioneer's manager of contemporary art. Since Chinese art collectors are more driven by finance and fashion, could the emergence of more Western galleries featuring contemporary Chinese art stabilize the market? 

The White Rabbit Gallery in Sydney showcases one of the world's largest private collections of contemporary Chinese art. Judith Neilson, the wife of one of Australia's wealthiest men, fund manager Kerr Neilson, runs the nonprofit organization and said her collection includes about 600 works by more than 250 artists. Asked if she believed Chinese contemporary art is undervalued, she said, "We don't believe so. There is a huge interest in contemporary Chinese art in Australia. Even in Sydney we are seeing an increase in the number of commercial galleries showing modern Chinese. The market is still quite buoyant and prices remain high." 

Another factor to consider is that several Chinese banks have art-investment funds. China Mingsheng Banking Corp Ltd is said to have been the first to start seriously investing in Chinese contemporary art. In April it bought out the entire collection of Huang Yong Ping's Leviathanation - an installation of a giant fish sticking out of a train - from Tang Contemporary Art Gallery in Beijing's 798 Da Hanzi Art District. Purchases by banks represent a high percentage of the contemporary Chinese market than the art funds in any Western country, as indicated by Thompson. A run of redemptions would force the sale of a lot of works. 

If art in China is fashion-driven, does this make the auction market more frenzied? Not entirely, according to China Guardian Auction. The market is more determined by the state of the economy and because of its recent state, last year's fall and spring auctions were "slow". 

"Some artists may not consider selling because prices will not be optimal until after the winter. I believe things will turn around in the spring. There will be a great opportunity to start buying art, then," said Li. 

However according to "super collector" Zhang Rui, there is a rule to buying art. "When the economy is strong, good art emerges. But no one wants to buy when prices are high. Good art doesn't emerge during weak economic times either and no one wants to sell at a low price," he said. Note: The price index for Chinese contemporary art has reached new records, even greater than prior to the global financial crisis. 

Despite the volatility of the global contemporary art market (plus 30 percent between 2004 and 2005, minus 38 percent between 2008 and October 2009 and plus 27 percent between July 2010 and June 2011), according to Artprice, there are mainstays who will continue to expand their modern Chinese art collections. Neilson made her first trip to China in 2000 and has been known to visit Beijing every three or four months. 

Sometimes there's no really good time to buy or sell because, as Neilson suggested, "it is impossible to predict what the market will be like in two, 10 or 50 years." Instead she prefers to buy work she loves. "I don't buy art as an investment because you never know how the market is going to respond," she said. 

Who's buying what? 

Chinese buyers are attracted to speculative phenomena and the social prestige linked to the acquisition of works of art. These investors seek to diversify their portfolios and are often consumers of the aura of luxury conveyed by expensive contemporary art, according to the annual report from Artprice 

Some big buyers in the Chinese mainland often lack the critical sophistication seen in the West. "Some big Chinese buyers don't know anything about the work or the concept, they just want to put money on a very high-priced painting because it's easy to sell later," said Wang. However, this is slowly changing as a result of increased exposure to contemporary art through television, art fairs and exhibitions and overseas travel. 

Traditionally, the works that sell best in China are paintings and sculptures. "It's the only thing on which the buyer can speculate easily and get his money back," said Wang. Contemporary pieces, especially "new-media" works (a term that refers to photography as well as video, audio and digital installations), only make up a fraction of the total Chinese scene. 

New-media art has been tried and tested in China but it's growing more timidly than in other parts of the world. It accounted for 7.68 percent of the contemporary art auction market in the last financial year, most of it sold in London and New York, according to Artprice. Contemporary art only accounted for 5 percent of Guardian Auctions' total sales for China. "There's even less interest in new media," Li said. 

Going against the grain in China is Tang Contemporary Art - one of the most progressive galleries in the Chinese market for new-media installations. One of the its best-selling artworks is Freedom by Sun Yuan and Peng Yu, which required the whole gallery to be waterproofed so that a giant hose could spray water around the room every two minutes. The artists made smaller editions of the installation as well as three bigger versions (one sold for about 2 million yuan). One of the reasons new-media art has been hard to sell is that it's hard to collect. "You need a large space such as a private museum or you really have to believe in the future installations. And, for collectors, these are very hard," said Wang. 

Space and passion aren't lacking in Neilson's gallery (once a knitting factory). The White Rabbit collection includes 50 or 60 new-media works. "We don't specifically seek out new media, but if I see a work that I like which happens to be a new-media work, I will buy it just as if it were a painting or sculpture. The key thing is my own reaction to the work itself." 

Where to buy 

Chinese buyers may feel that auction houses provide greater price transparency and bidders seem reassured by the presence of other bidders. But how competitive are the prices? Take this into consideration: China's leading auctioneers Poly International Co Ltd and China Guardian Auctions Co Ltd have about 60 percent of the mainland market for high-end contemporary art at auction, according to Thompson. Sotheby's and Christie's are also not allowed to hold auctions on the mainland but operate from their offices in Hong Kong, he added. 

Poly International's contemporary art sales are already on a par with those of Christie's in New York (Christie's total revenue amounted to 88.2 million euros ($111 million) versus Poly Beijing's 83.4 million euros). "The problem with Poly is that it is too focused on money and traditional Chinese art," said Wang. 

Most of the contemporary works sold in Hong Kong are made on the mainland. Foreigners and mainlanders may prefer Hong Kong as a destination to conduct art deals because of its "free port" status, tax exemption on the import and export of artworks, its respect for banking confidentiality and more liberal regulations than either Beijing or Shanghai, according to the Artprice report. 

Despite this, big collectors still prefer to buy from Beijing - a creative center where galleries compete to sign up the best artists. Neilson, for example, never goes through auctions. "We prefer to deal with the artists directly whenever possible, although that isn't always the case. In those events we would deal with their gallery," she said. 

Risky business 

It seems that the most successful art investors are people who not only have the money, but those who best understand the concept of art. The increased interest has led to the explosion of the Chinese contemporary art market, which has produced a new wave of young artists eager for instant financial gratification. Today there are young artists, barely out of art school, whose works sell easily for 10,000 euros (81,000 yuan) to 20,000 euros. "I think that's too easy. Nowadays, out of 100 young artists, only two or three will become very successful," said Wang. 

Remy Ji contributed to this article.