Flush with cash from China’s newly rich collectors, the country’s biggest auction houses—Beijing Poly and China Guardian—present a potent threat to the long-standing dominance of Christie’s and Sotheby’s. But there are reports that some parts of the Chinese industry are marred by rigged bids, fraudulent works and other speculative practices, which could hinder international growth.
Transparency
Six years ago, Poly, China’s biggest auction house and now the world’s third largest, didn’t exist. Guardian has only been operating since 1993. According to the French auction regulator Conseil des Ventes, half of the world’s top 20 and five of the top ten houses are now Chinese. But growing pains have accompanied the breakneck expansion.
Although there is no suggestion of problems at Poly or Guardian, a report from the official Xinhua news agency in June said “irregularities” in the art auction market were “rampant”, particularly among smaller houses. It’s a view backed up by conversations with several dealers, gallery owners and auctioneers based in China and Hong Kong.
For example, it’s not uncommon, they say, for the seller, a big holder of the artist in question or even the artist themselves to bid on their own pieces to push up prices. Some auction houses are said to have bid on their own lots to ensure a better sell-through rate. There have even been accusations that art auctions have been used for money laundering, and there have been several high-profile disputes over paintings sold at auction that have later been proved to be fakes.
As Christie’s and Sotheby’s have also discovered, late or non-payment is an issue with Chinese buyers. Most domestic Chinese auction houses insist that all bidders put down a hefty deposit, usually around £20,000 to £50,000, before picking up a paddle. Sotheby’s and Christie’s now demand a “premium lot” down payment at their Chinese art auctions (The Art Newspaper, October, p83).
According to a recent survey by the China Association for Auctioneers, two-fifths of sales above Rmb10m (£1m) from last year’s autumn sales had not been fully paid by April this year. Of course, whether or not money actually changes hands, the prices still stand, prompting many to speculate that China’s record-breaking figures are inflated.
Jehan Chu, the director of the Hong Kong-based art advisory service Vermillion Art Collections, says “there have always been questions about the transparency of sales results of mainland Chinese auction houses. These questions are not an issue for externally audited Christie’s and Sotheby’s, but it will be a big hurdle for China’s auction houses to assure people abroad that they have the intent and ability to improve standards and practice.”
Given the doubts about the true size of the Chinese art market, there is likely to be keen interest in any financial disclosures that Poly’s parent company, Poly Culture Group, may make as part of rumoured preparations for a public share offering. However, a Poly spokesman told The Art Newspaper that, while the auction house was aware of the reports, it had not been officially notified of any stock market listing plans by its parent company.
Conducting business
Although sellers’ commission rates are similar to those offered by Christie’s and Sotheby’s, the buyer’s premium at Chinese auction houses tends to be lower and, unlike their international rivals, they offer discounts to loyal customers. The Chinese houses treat their buyers well, laying on flights and hotel rooms.
“In a rising art market, the kind of aggressive, commercial behaviour we see in the Chinese houses may pay off, but imagine if there’s a major downturn. That would be a true test,” says Kevin Ching, the chief executive of Sotheby’s Asia.
Aware of the problems, Chinese auction houses are striving to improve standards and emulate their international rivals. “The country has thousands of auction houses and among these are some that engage in illegitimate behaviour, and this has a negative impact on the whole industry’s reputation,” a Poly spokesman said in an emailed response to questions.
The quality of catalogues, websites and other marketing materials, along with the look and feel of the auctions themselves, has improved markedly. They are also recruiting English-speaking staff and publishing catalogues in English, even if the translations are sometimes patchy.
Guardian and Poly’s plans to open offices in Europe and North America (The Art Newspaper, October, p1) also hint at global ambitions but, for now, these have the aim of sourcing Chinese works of art to sell back home.
“Poly has offices in Japan and New York, and our overseas relationships provide us with about half the works that sell at auction. We do not have plans to hold auctions overseas at present,” said the spokesman.
With Chinese law preventing western salerooms from holding auctions of artefacts, and high import taxes making sales of wine, jewellery and watches commercially unappealing, there is little Christie’s and Sotheby’s can do to compete, other than build their brands and wait for China to level the playing field. Both companies plan to hold more previews in China and have recruited more Chinese-speaking staff. Christie’s also has a licensing agreement with the Beijing-based auction house Forever, which for a fee uses Christie’s name and expertise. So far its results have been lacklustre. Its annual sales are barely a tenth of the $1.5bn Poly achieved in 2010, but François Curiel, the president of Christie’s Asia, is confident that the auction house will be able to compete. China’s nouveau riche have demonstrated that they trust foreign brands when it comes to cars, clothes and handbags, and he sees no reason why it should be any different for auction houses.
“In China, we are at the beginning of a cycle. In time, we hope our network, our reputation and our marketing power will convince people to buy and sell with us,” he says.
Originally appeared in The Art Newspaper as 'China versus the big two'