Investing in China’s Art Auction Market

By Roy K. McCall

China’s art and antiques market is the world’s largest, with 2013 sales exceeding US$8.5 billion, up 28.8 percent from 2012.The overseas market of Chinese art and antiques in 2013 was US$2.3 billion, representing an even larger increase from the year before of 42 percent.

China’s affluence is reaching beyond China and Chinese art. In November 2014 at a Sotheby’s (NYSE: BID) auction, Wang Zhongjun, chairman of the China’s film studio Huayi Brothers, bought Van Gogh’s 1890 painting Still Life, Vase with Daises and Poppies for a record US$62 million – more than double the US$28.2 million for a Picasso that Dalian Wanda paid at a Christie’s auction one year earlier.

Transparency into the Chinese art market is growing thanks to professional art news providers such as Artron.net, Hurun, YangGallery.com and others. Artron provides information in both Chinese and English on global auctions and art, not just about Chinese art or China’s market.  In addition, by mid-2015, artnet, with the China Association of Auctioneers is expected to release the third edition of its Global Chinese Art Auction Market Report. 

RELATED: Broad Strokes of Success for Auction Houses in China’s Fine Arts Market

Poly International Auction of China’s Poly Group, a $40 billion state-owned conglomerate, is China’s leading government controlled auction house and the world’s third largest.  But others are enhancing competition and transparency. Poly’s archrival China Guardian ( cguardian.com) publishes seasonally active auctions in paintings, calligraphy, porcelain and most recently, coins.  Guardian’s auctions have been mainly held at Beijing’s International Hotel on Jianguomennei, and have been extended occasionally to Hong Kong’s Island Shangri La or the JW Marriott in Pacific Place.

Art auctioneers compete aggressively. To win business the largest auctioneers might guarantee a minimum bid, and have been known to lose millions when actual bids do not clear the minimum.

Art investors have also been concerned about distinguishing fakes. Celebrity Zhang Daqian: (b. 1899 Sichuan – d. 1983 Taipei) was renowned as both a forger and a dealer. When he noticed that his buyers could not appreciate the difference, Zhang turned to forgery and produced outstanding works reminiscent of Ming master Shitao. In the late 1990’s skillfully forged paintings of Fan Zeng became so prolific in Tianjin’s Ancient Culture Street that police began confiscating them with Fan Zeng. In 2014, one group of fakers even issued a catalogue meant to guide investors in authentic art which itself was marketing fakes.

In 2006, China’s Ministry of Culture initiated an appraisal committee to provide art consultation services to the public.  China’s National Development and Reform Commission is also attempting to establish a credible and independent fine arts appraisal agency.

Art forgery is a worldwide problem extending well beyond China. Insurers such as ARIS Title Insurance Corporation are searching for expert technologies in authenticating art.

How can foreign investors play the China art auction market? First, to capture deposits from affluent buyers of art worldwide, banking intermediaries such as Citi have already established art advisory and finance departments. Secondly, auction houses such as Sotheby’s and Christies are welcoming Chinese buyers venturing abroad. Thirdly, the need to hire those who can authenticate and promote art in China will stimulate a talent hiring boom – an opportunity for specialized HR firms and also a chance for smaller auction houses to catch up economically in combination with social media. 

Lastly, holding the potential for high growth in China, may be the opportunity to scale on-line auctions in China. As authentic art is not a commodity, existing e-commerce platforms and seller claims do not suffice. In July 2014, eBay agreed to give its customer based access to Sotheby’s on-line fine art auctions by early 2015.  Access to on-line auctions may be key to transitioning from low priced (<US$100K) “accessible art” to high ticket (>US$100K) “fine art.” To date, profitable scaling has eluded on-line auctions.

Some investors have become impatient with the pace. Daniel Loeb’s Third Point LLC activist hedge-fund firm has pushed for faster progress from Sotheby’s, the world’s largest publicly traded auctioneer of fine arts and collectibles, with pressure cooker conditions for those at the top.

Roy K. McCall CFA/CPA collects Chinese calligraphy from Chinese farmers and a descendant of Song Dynasty’s Yue Fei. Roy has recently interviewed Chinese art studios and travel agents confirming that Chinese have eclipsed foreign buyers in China, and travel to Japan to buy back Chinese art.

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