Forging an art market in China

Forging an art market in China

Ma Weidu, a major collector based in Beijing, recounted how easy it still was in the 1980s to secure small artifacts. People gave them to him for nothing, he said, or traded them for a few cigarettes. Occasionally, he would pay a small fee.

“They’d say: ‘Take it all. All I want is a washing machine,'” he recalled.

The auctioning of art remained rare until the early 1990s, when the government lifted restrictions on the sale of cultural relics. Still, the art market did not begin to take off until 2004, fueled by rising incomes.

Now there are more than 350 Chinese auction houses that deal in fine arts. The two largest—Poly International Auction company, and China Guardian—are billion-dollar enterprises with offices in several cities, including Tokyo and New York, and close ties to the country’s ruling elite.

But as the market has grown, so has its dark underbelly. Price manipulation is rampant, analysts say, as collectors and investors, perhaps an art investment fund with large holdings in a particular artist, bid up a work to boost the value of their entire inventory. Sometimes, experts say, auction houses themselves throw in fake bids. The Chinese have a name for the price-boosting process. They call it “stir frying.”

While some collectors care deeply about their art, even exhibiting it in their own elaborate private museums, many buyers are primarily investors looking to flip a work for profit, experts say. Objects are sold and resold. One painting by Qi Baishi, “Fish and Shrimp,” sold four times at auction in the 10 years ending last December, the price climbing to $ 794,000 from $ 30,000 in 2002, before trailing off last year to $ 552,000.

Resale opportunities are a priority for many buyers. At an auction in Beijing last month, four men from Guangzhou bought several paintings worth tens of thousands of dollars. “Most people you see here, we don’t have a real job, we are traders,” said one of the men, in a white bomber jacket. “We buy them and resell them to educated, wealthy people.”

Analysts say that flipping artwork contributes to the market’s nonpayment problem. Before an auction, a buyer might find a collector interested in a piece and bid successfully for it, but refuse to pay if the deal with the collector falls through.

And then there are the payment problems that arise because China’s art market is, economically speaking, so young, and its rich are so recently minted.

“There is still a big difference between East and West in understanding whether raising a paddle at an auction is actually a binding contract or not,” said Philip Tinari, director of the Ullens Center for Contemporary Art in Beijing. “Some young starlet buys a bunch of paintings at an auction, walks out and says, ‘Nos. 13, 11, 7, 6, 5 those are the ones I don’t want.’ It happens all the time.”

Auction houses have typically papered over the nonpayments, reporting aborted transactions as true sales, even posting record prices and seldom correcting the record. This has misleadingly burnished their revenues, making the market seem hotter and propping up prices, industry experts said.

The practice has so alarmed the Chinese authorities, who worry that it could undermine the credibility of the market, that the auction association and state bodies like the ministries of commerce and culture stepped in a few years ago.

As part of a larger program of reforms, the association now collects nonpayment data and publishes its findings in an effort to expose malefactors. It not only encourages auction houses to blacklist buyers with a history of not paying, but also recommends that the houses require steep deposits from potential bidders. The government has canceled or suspended the licenses of 150 auction houses between 2008 and 2011 for a variety of problems, including the sale of fake items.

Even with the fraud and fakery, many collectors and investors say there is too much excitement and profit in the market to warrant dropping out, especially when new money keeps showing up at auctions, ready to buy.

“In the newspapers, there are always stories of someone buying something for a dollar and selling it for a million,” said Rui Zhang, who runs the art market and management programs at Tsinghua University in Beijing. But Jiang Yinfeng, an artist, critic and curator, said that the people who suffer in such an overheated market are often those with little experience in such matters. “Some of my friends use their houses as collateral to buy art items,” he said. “Some of them take high-interest loans.”

One engine driving the Chinese art market has been the culture of gift-giving, which prompts provincial officials to arrive en masse in Beijing during the Mid-Autumn Festival in September, further clogging the congested streets as they ferry presents of art, alcohol and other items to senior government officials.

But art is also used in more elaborate bribery schemes. In some cases, an official will receive a work of art with instructions to put it up for auction; a businessman will use it as the currency for a bribe, purchasing the art at an inflated price and giving the official a tidy profit.

“Unlike cash, the value is less obvious,” said Zhang Pingjie, a curator at the Himalayas Art Museum in Shanghai.

Whether the given work is real often doesn’t matter, experts say, because the buyer intends to spend lavishly anyway. And were the scheme to be discovered, the minimal value of a fake would mean a lesser punishment.

The bribery of public officials with art is so widespread that the Chinese have coined a term to describe this kind of aesthetic corruption.

They call it “yahui” or “elegant bribery.”

One such bribery case occurred several years ago when the city of Chongqing cracked down on the gangsters who controlled its buses, taxis and gambling parlors.

In 2009, the authorities detained the man who had protected the criminals: the city’s own deputy police chief, Wen Qiang.

Searches of Mr. Wen’s properties turned up watches, wine and other items typical of graft around the world, including $ 3 million in cash wrapped in oil paper and submerged in a fish pond.

But investigators also discovered a surprisingly expansive and expensive collection of art at Mr. Wen’s mountainside villa and another home he kept at the Crabapple Moon Residences. He had been given, they said, more than 100 works, including fine ivory sculptures and a Buddha head carved from stone. Valuable calligraphy scrolls were stored in a ceramic container. A painting attributed to Zhang Daqian rested on a bookshelf.

Mr. Wen was executed for his crimes the next year.

“Who is in the auction market?” asked Li Yanjun, an art expert and authenticator at Beijing Oriental University.

“Government officials,” he said. “They hide and have people bid for them, or buy up their works.”

Brand new antiques

The stool and dressing table were a set, carved from jade and said to date from the Han dynasty, some 2,000 years ago. Their sale at auction in Beijing two years ago drew $ 33 million and lots of fanfare.

High Net Worth


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