Auction houses like Sotheby, Christie´s and also number three China´s Poly Culture Group have dominated much of the art market in China. But that might be changing as the market matures, writes WSJ wealth editor Wei Gu in the Wall Street Journal. Grow of private sales and stiffer competition move in.
The dominance of auction houses in China’s art market may also be a red flag. While 70% of art-market turnover in the more mature New York and Paris markets comes from private sales, in China auctions account for almost 90%, according to CLSA.
This gives investors two things to worry about. If the Chinese art market becomes more like those others, with a shift toward private sales, auction houses’ share of the pie will shrink, as will their influence over art pricing. But, on the other hand, if auction houses continue to dominate at the expense of galleries, that could limit the supply of work by new artists.
Galleries showcase and promote new talent, which is necessary for the art market to keep growing. China is a seller’s market for art—the portion of unsold lots is often the lowest in the world. Sourcing is a challenge for auction houses in the West too, but they have the gallery network to develop new artists.
The lack of galleries in China makes the market heavily reliant on traditional ink paintings and porcelain, whose supply is limited and which may look stale over time. Oil paintings and contemporary art account for just a one-tenth of the market, according to Artron.
Finally, fierce competition means Chinese auction houses aren’t as profitable as their Western counterparts. Commissions are lower, as are gross margins. Poly is China’s biggest auction house, but that translates to only about one-tenth of the domestic market, or 6% of the market world-wide. Christie’s and Sotheby’s each have more than a quarter of the global art-auction market.
And in a fresh worry for Poly, those two giants, long kept out of China, now both have a foot in the door. After a successful debut in Shanghai in 2013, Christie’s will host two mainland auctions this year. Sotheby’s and Christie’s still aren’t allowed to sell artwork that predates the founding of the People’s Republic of China in 1949, but they are free to sell wine, jewelry and works by international artists, categories in which Sotheby’s and Christie’s have expertise and for which demand has been robust lately.
Poly does have its advantages, of course. Growth may get tougher at home, but Poly has a deep knowledge of Chinese artists that could open a path to international expansion, giving it a role in the global market. It achieved strong auction results in Hong Kong last year, in its first foray outside the mainland, bolstering that idea.
Still, Poly would have been better off going public two years ago, when the Chinese market was booming and the foreigners were kept at the door.
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