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Auction houses in China: Christie’s v the people’s army; Foreign auctioneers have begun to enter China’s huge but unruly art market. They will not find it easy

Auction houses in China: Christie’s v the people’s army; Foreign auctioneers have begun to enter China’s huge but unruly art market. They will not find it easy

Sep 28th 2013 | SHANGHAI |From the print edition

IN 1779 the estate of Sir Robert Walpole, Britain’s first prime minister, sold an art collection to Catherine the Great. The private sale, which included pieces by Rubens and Rembrandt, was brokered by James Christie, a pioneering auctioneer. Though she placed most of these in St Petersburg’s Hermitage museum, the Russian empress traded a few items with the Qianlong emperor for some Chinese masterpieces.Despite this precedent, China has resisted globalising its art market. It has long forbidden foreign auction houses from operating independently on the mainland. The grip eased a bit this week, as Christie’s held its first sale in China. The auction, which offered a motley assortment of Chinese and Western fine art and collectibles, was a small one—but it marked an important step in China’s ongoing integration into the global scene. Sotheby’s, a rival Western auction house which has formed a joint venture with a state-owned Chinese firm, is planning an auction in Beijing in December.

The attraction is clear. China’s art market is the largest in the world in value terms after America’s, though it has had its wobbles. From 2007 to 2011 it seemed to be the world’s fastest-growing. But then the total value of art traded fell by nearly a quarter in 2012, to €10.6 billion ($14.3 billion). It has remained soft this year. Sceptics question these official figures, arguing that auctioneers often cook their books and that sometimes successful bidders for big-ticket items fail to pay, and thus the deals collapse. But they agree that China is a huge market.

The foreigners must keep their wits about them. The power of incumbents is one challenge. Although China has about 6,000 galleries, the market is dominated by 44 licensed auction houses (out of 300 in total), which control perhaps 70% of sales of art and antiquities. Cai Jinqing, head of Christie’s in China, says her firm plans to take them on with its depth of knowledge (it offered expert art lectures before this week’s auction), innovation (it does online art auctions) and its trusted global brand.

Zhao Xu, the boss of Poly International, a giant auction firm owned by a conglomerate controlled by the army, is supremely confident that the arrival of foreign rivals “will change little”. He argues that the newcomers have no competitive advantages inside China. As an example, he points to local firms’ vast experience selling Chinese paintings and calligraphy, which made up roughly half the value of all items auctioned last year.

Not only will the foreign auctioneers have to do battle with an offshoot of the mighty People’s Liberation Army, they will have to operate in a market that is distorted by a mix of under- and overregulation, lack of openness and outright crookedness. One barrier is high taxes and a heavy-handed system of permits. Another problem is the prevalence of counterfeits. Several experts insist that some artists also work in cahoots with galleries, big auctioneers and even property developers to rig auctions. Though less common since the market correction last year, an insider says such practices still abound: “it happens in the West too, except in China we do it with more enthusiasm.”

The domestic auction market is just opening up, but in other ways China is already a big force globally. Leading artists such as Zhang Daqian and Qi Baishi now fetch eye-catching sums at auctions in London and New York. Last year five of the ten top-selling artists worldwide were Chinese. China would play an even bigger role if exports of antiquities were allowed.

Chinese buyers are also a powerful force at auctions outside the mainland, often acquiring items they argue were looted by foreigners. China is now the world’s fourth-largest importer of art, bringing in €1 billion-worth last year. When François Pinault, a French billionaire who now controls Christie’s, wanted to curry favour with politicians, he returned two controversial historical relics, the rat and the rabbit (pictured).

So could China become the dominant art market? Industry types are aflutter about tax breaks they pray will come in a proposed Shanghai Free-Trade Zone, to be launched soon. Pearl Lam, a leading art promoter, thinks more is needed. Beijing or Shanghai could displace Hong Kong as Asia’s regional art hub one day, she says—but only if there is an end to censorship and red tape. Do not hold your breath.

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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