A move to Hong Kong may mark the first step in a growing international business strategy for mainland auction houses.
Drawn to Hong Kong by lower taxes and favourable market conditions, mainland Chinese auction houses China Guardian and Poly Auction hosted their first sales in Hong Kong in October and November of 2012. We round up the key commentary surrounding the move.
The Chinese auction houses’ move into Hong Kong was a direct challenge to the market status quo. China Guardian scheduled their premier Hong Kong sales to coincide with Sotheby’s in October, while Poly Auction held theirs at the same time as Christie’s. ARTINFO reports that both Poly and Guardian had moderately successful sales.
When speaking with the press, Poly and Guardian representatives are quick to jump to ethnic ties to account for their international ambitions. The Financial Times spoke with the director of Poly Auction about the role he felt the auction house could play in the international arena.
Zhao Xu, Poly’s executive director, has little doubt about its ability to compete with foreign rivals that have been selling Chinese art for decades. … ‘Overseas Chinese still prefer a big Chinese auction house run by Chinese people to help them sell their artworks,’ says Mr Zhao, explaining that ‘Chinese people know better’ about Chinese art.
ARTINFO was in attendance for China Guardian’s inaugural Hong Kong sale, and emphasised the auction’s lack of diversity.
Hong Kong collectors were in the room, but the event was an overwhelmingly mainland Chinese affair: Guardian had flown in more than twenty of their top mainland buyers for the event, and proceedings were conducted in Mandarin Chinese rather than the English that is the norm in Hong Kong’s sales rooms. Why drag your best customers 1200 miles to a sale that could have been held at home? The likely reason is that the move into Hong Kong is not so much about reaching a new market as about providing a more congenial venue for Guardian’s mainland clients, away from the complex sales taxes and growing scrutiny that characterise the mainland auction scene.
Taxes: the main draw
Several news outlets noted the tax benefits in running a Hong Kong operation, implying that this may be the main motivation behind the mainland auction house move. According to The National,
The Chinese auctioneers are lured to Hong Kong for a number of reasons, including to take advantage of the city’s internationalism and, crucially, its low taxes. … China has drastically cut its import duties on objets d’arts to six percent from twelve percent since the beginning of the year but a whopping seventeen percent of value-added tax is a major burden for houses and collectors…. There are other reasons for moving into Hong Kong. China is clamping down on tax evasion, on fakes and on money laundering, which means Hong Kong’s more open regulatory environment is becoming more attractive.
The tax problem was only exacerbated by a crackdown earlier this year that saw the arrest of two art importers accused of undervaluing objects to shirk government fees. Increasingly stringent regulations may influence the mainland auction houses for some time. Ji Tao, a researcher with the Auction Research Centre of Central Finance and Economics University in Beijing, told the South China Morning Post,
The tightening-up brings tremendous uncertainty to the [mainland] art market and propels the leading houses to look for their second option overseas. Poly will probably keep its high-end inventory in Hong Kong, which may lower its sales in Beijing.
Everyone a winner
While the opening of Poly and Guardian in Hong Kong is a major challenge to the auction giants’ regional dominance, in some ways it may also benefit them. Jing Daily notes that more market participants in Hong Kong may bring a greater diversity of works to the region, including the much-discussed yet still unrealised goal of selling Western contemporary art to Chinese collectors. They note,
The convergence of mainland Chinese, local Hong Kong, international Asian and Western collectors on Hong Kong has made it one of the most diverse auction markets in the world, with demand high for everything from traditional Chinese ink paintings to rare watches and contemporary photography. Though demand for Western art has remained relatively low, some auction houses think regional buyers are ready to add a few Warhols or Picassos to their collections.
According to The Wall Street Journal, holding sales on the same day may have been mutually beneficial. On the November 2012 sales, they noted,
The two sales rooms each held more than 150 bidders and spectators for the most popular lots. Both Christie’s and Poly said that the timing of their sales may have brought out more buyers than usual. … ‘Poly brought out new buyers from China for us, who had heard of Christie’s but had never been to our auction before,’ [President of Christie’s in Asia François] Curiel said.
- Ronald Ventura contemporary standout: Christie’s autumn 2012 art evening sale – November 2012 – a first-hand account from an Art Radar journalist at the Saturday evening modern and contemporary art auction
- Hong Kong art auction, gallery scene breakdown – ArtTactic podcast – October 2012 – Art Radar founder Kate Cary Evans talks Sotheby’s disappointing autumn 2012 auctions
- Ashen faces, groans as Chinese art bombs – Sotheby’s Autumn 2012 Contemporary Asian Art auction – October 2012 – terrible contemporary art sales for Sotheby’s in Hong Kong
- Auction houses on move in Asia: Christie’s first Singapore Pop-Up Preview – September 2012 – Sotheby’s and Christie’s expanding Asian operations
- Sotheby’s breaks into China with first foreign auction house joint venture – September 2012 – Sotheby’s enters into the notoriously closed off Chinese market
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