Written by Barbara Pollack, October 21, 2013 on www.artnews.com
It’s the last day of his spring sale in June 2013, and Zhao Xu, chairman of the Beijing Poly International Auction Company, is distracted. The 44-year-old head of the world’s third-largest auction house (after Christie’s and Sotheby’s) never moves his eyes from his computer as the figures roll in, bringing the total for the week of sales to more than $461 million for Chinese classical paintings and calligraphy, Chinese modern and contemporary paintings, ceramics and works of art, rare wines, and other antiquities. With total revenues for 2013 now approaching $620 million, Zhao has once again beat out his local competitor, China Guardian Auctions Company, which achieved $537.9 million and surpassed Christie’s Hong Kong’s $418 million for the same period.
According to the latest report of theEuropean Fine Art Foundation, China is now the world’s second-largest art market, accounting for more than 25 percent of international auction revenues, and Poly (as it is commonly called) is a big factor in the country’s achieving this position. Founded in 2005, Poly expanded rapidly from its remarkable first sale of over $91.5 million to record revenues of close to $2 billion in 2011, without even offering masterpieces of Western art. Since then, prices have cooled in China, and Poly, like every other house in this field, saw a dip in its totals to nearly $1.1 billion. But many say that Poly, as opposed to its competitors, has the resources and ingenuity to weather any turn in the market.“At the very beginning, I just wanted to have a good result at our first sale,” says Zhao, who was a romantic-realist painter and an art dealer before he was recruited to assist Poly in setting up the auction business. “I couldn’t imagine it as something this big back then in 2005.” Yet the company was not a small venture, even from the beginning. Rather, it is part of the grand scheme of the China Poly Group Corporation, a $40 billion state-owned enterprise, best known for arms dealing, but it also includes subsidiaries dealing with real estate, natural-resource mining, and investments. The company was originally founded in 1992, under the supervision of the People’s Liberation Army, and then in 1999 control was transferred to another government agency. In 2000, as a government-owned business, Poly moved into the sphere of “soft power,” using art and culture to wield influence globally. To that end, it opened a cultural branch, whose initial purpose was to reclaim cultural relics from Western sources and repatriate them to China. Poly Culture Group Company currently manages a Beijing museum, theaters, cinemas, and film and television production enterprises, in addition to the successful auction house. Now, the company, including the museum, is housed in a 1 million-square-foot, 24-story glass tower, designed by Skidmore, Owings & Merrill, a modern Beijing landmark that opened in 2006.
With resources like these, Beijing Poly International Auctions can afford to do things that other auction houses in China can’t. For example, it is known to offer cash advances to valued consignors, as when it gave Baron Guy Ullens $10 million to put up for sale 18 works from of his renowned collection of contemporary Chinese art in 2009. (The auction raised over $22 million.) More recently, the firm made a deal with Minsheng Banking Corporation, the largest bank in China, to offer financial services such as loans to interested buyers. Both of these practices, which have their parallels in Western auction houses, are problematic in China, where loans are notoriously precarious and buyers often disappear from view. A recent report issued by the Chinese Auction Industry Association found that 40 to 50 percent of reported sales in China fail to be completed. The association, which will soon issue new regulations, attributes the 2012 decline in sales to lack of confidence in the auction houses, but others have ascribed the contraction to political factors, such as the change in government leadership last year and the imposition of penalties, even jail time, on those failing to pay custom duties. The CAIA would not comment specifically on Poly’s results, but Poly has recently begun to require deposits of up to $1.5 million for buyers, thereby bolstering the likelihood of payment.
“There are many misunderstandings over particular things, so maybe we have a different view than in the West, where trading is much more direct,” says Li Da, general manager of Poly. “In the East, we deal with more flexibility and understanding. We are trying to establish a—let us say—gentler relationship between buyer and seller,” she adds, referring to Poly’s practice of offering flexible payment plans to close a sale or providing advances to get a consignment —whatever the circumstances dictate.
The firm is known to pursue deals aggressively and to make arrangements to obtain consignments on a case-by-case basis without concern for consistency. In certain instances, Poly has been known to require consignors to bring in bidders to guarantee a sale. While Li uses the term “flexibility” to describe Poly’s approach, others perceive it as a form of aggressive marketing that tests the limits of China’s rudimentary auction regulations. It is this ethos that has contributed to Poly’s reputation for being unscrupulous, lacking in transparency, and for changing the rules to suit every transaction.
As Ma Xuedong, executive director of the Art Market Research Center, which publishes Beijing Art Prospective, a quarterly periodical that reports on the country’s auction market, puts it, Poly “may have the biggest numbers but they may not be the best auction house in people’s minds.” He cites the practice of private sales. Poly is the first auction house in China to launch such a department, and although it is not technically illegal, it does stir jealousy and trigger criticism among its competitors. “In China, the legality of private sales is kind of a blur—not really developed, and you are not supposed to do it, but Poly is doing it,” says Ma. In other words, the auction regulations have not yet specifically addressed private sales, but the practice is generally frowned upon by other auction houses.
When asked if Poly could get in trouble when the Chinese Auction Industry Association issues its new regulations, Ma shakes his head. “No, they definitely need to follow the rules. They have the highest sales in China and are catching up with Christie’s and Sotheby’s so they won’t do anything to jeopardize their brand.” Again, the CAIA would not comment.
“There is a general issue of lack of transparency, and there is an issue about payment,” says Philip Hoffman, chief executive of the Fine Art Fund Group Limited, which has invested heavily in Chinese artworks, but which has come up against such problems when consigning in any of the Chinese mainland firms. “One of the biggest issues we are having with selling to Chinese or working with Chinese partners is getting guarantees of certainty of payment. We have not found consistency with abiding with U.S. and UK systems of law, in terms of bidding and having to pay. People are bidding and walking away from payment.” According to Hoffman, a contributing factor is that clients in China are new to the business and not well vetted; they may even be represented by a shell company disguising its genuine, often shady, business.
But Li insists that Poly’s creativity and initiatives have made it more probable that a consignor will get paid eventually, if not on time. “We provide the financial service to the client who needs financial support. If they buy an artwork and they just don’t want to pay for it, we will find a way—maybe even sue them in the court,” she says. “But sometimes they buy something, and they just don’t have the way to quickly deliver the money. Then we look at this buyer’s credit, and if their background shows good credit, we can provide the service to finance the deal, such as arranging a loan from Minsheng Bank to deliver the money to the seller.”
“I’ve placed consignments with Poly many times and I’ve never had a problem,” says Meg Maggio, owner and director of Pekin Fine Arts, a Beijing gallery. Characterizing Poly as an “innovator,” she points out that the firm recently initiated the first sales in contemporary design and has been a pioneer in organizing pre-auction exhibitions, traveling works around the world and around China. “Contemporary auction sales are slowing down here,” she says. “But Poly has more categories of auction sale items than any other auction house in the region. This will protect them from a downturn in any one sector.”
Poly is moving forward, rapidly promoting itself as a global brand. It now has offices in Taiwan, Australia, and Japan, and in 2011, it opened offices in New York and San Francisco. Its U.S. representatives are looking for consignments—primarily classical Chinese works of art that have found their way into collections here but may find buyers in Beijing eager to bring such properties back to their homeland. Although no sales are planned for the United States at the moment, Poly began to hold sales in Hong Kong in 2012, putting it in direct competition with Sotheby’s and Christie’s, which have been holding sales there since 1973 and 1986, respectively. In its most recent spring 2013 sale in Hong Kong, Poly made $22 million, hardly comparable to Christie’s Hong Kong totals of $418 million and Sotheby’s Hong Kong total of $280 million. (China Guardian has also begun to hold sales in Hong Kong, raising $38 million in its two-day sale.)
“The Chinese auction houses are healthy competition; they are fast learners, but up to now, I don’t see any real competition in Hong Kong,” says Kevin Ching, chief executive officer of Sotheby’s Asia; his office at Pacific Place in Hong Kong is two floors below Poly’s. Both firms hold sales at off-site premises, either the Hong Kong Convention and Exhibition Centre or one of the local hotels. “With the things we sell here—wine, watches, jewelry, Southeast Asian art—we are light-years ahead. In terms of getting consignments, we have a global reach because we have been operating for over 200 years, which the mainland auction houses don’t have yet.”
Ching makes the point that it is not coincidental that the two leading mainland auction houses began doing business in Hong Kong in the past year. China has a high value-added tax of 34 percent on works of art, sold in or brought into the country. This tax had been generally ignored for close to 20 years, thereby allowing mainland firms to bring in material from foreign sources without penalty. But in 2012, a widespread crackdown, with several arrests, chilled the auction market and led mainland firms to seek the safer waters of Hong Kong, a duty-free zone. “They are now selling paintings consigned by foreign collectors in Hong Kong and paintings coming from mainland sources in China,” says Ching, indicating that this strategy has not increased the volume of material offered by Poly; it has just shifted the material between two locations. According to Ching, this is not taking market share away from him.
To complicate matters further, Sotheby’s recently formed a partnership with the Beijing-based Gehua Cultural Development Group, a state-owned multimedia company, allowing Sotheby’s to hold auctions in China. And Christie’s, which has registered as a “wholly foreign-owned enterprise” or WFOE—the first independent foreign auction firm to be licensed to do business in China—had its first sale in Shanghai in September. Up until now, foreign auction houses were not allowed to operate in mainland China under any circumstances, and even now, they cannot handle cultural relics, which means any art created before 1949. In a country where classical Chinese paintings and examples of imperial porcelain command the highest prices, this regulation puts foreign firms at a definite disadvantage.
“This is a sale in China but it’s not a Chinese sale, it’s an international sale, just as a sale in London is not a London sale,” says Jonathan Stone, chairman and international head of Asian art for Christie’s, who notes that the auction house will offer wine, jewelry, watches, Chinese contemporary art, and international art. He looks forward to being the first house to sell a Warhol or a Picasso in mainland China. “The whole thing is extremely exciting. I do think it’s comparable to how it felt to open in New York 30 years ago. It’s one of those big steps.”
Zhao is unfazed by the prospect of Sotheby’s and Christie’s encroaching on his turf. It is his vision that has led the company to pursue an international agenda, and he is sure, at least in China, that he is the leading brand. “It’s like it was in China in 1942, during the Civil War. There were two parties—the Communist Party and the Kuomintang. Power shifted one way and then the other. But what the Kuomintang didn’t know is that the power and weight were about to change,” says Zhao. “We are like the Communist Party, and Sotheby’s and Christie’s are like the Kuomintang. They have many more resources overseas, but we have the people’s faith.”
Barbara Pollack is a contributing editor of ARTnews.