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As leading international auction houses invade the mainland, their Chinese peers are working hard to expand their influence overseas. With the approach of September sales, a new landscape is forming and the bidding wars are fierce. Emma Dai reports.

Among businesses with an eye on the future, the Chinese mainland market, spawning visions of rivers of golden stardust, remains the brightest luminary in the firmament, but those who sail into the unchartered waters of the mainland need to give heed to the cautions inscribed on the maps of the storied ancient mariners, "there be dragons". And as we learn from our storybooks, the dragon's treasure is jealously guarded.

The auction business, for one, has boomed from nothing during the past decade. The central government had not thrown open doors however, to allow the country's treasure to be pillaged by foreign giants. Not until very recently have both Sotheby's and Christie's been granted licenses to hold auctions on the mainland.

To thrive in the middle kingdom, they still need to learn the rules and lay out their war maps carefully or may find their endeavors all but futile.

Take Sotheby's, the venerable old auction company of nearly 300 years duration found itself hampered by apparently insurmountable encumbrances when it tried to crack the mainland market.

Out of the game

"Our development strategy on the mainland largely depends on government policy," Kevin Ching, CEO of Sotheby's Asia, tells China Daily. Summing up prospects for the auction house on the mainland he notes, "To this day, it's still illegal for foreign auction houses to auction cultural relics."

According to the Law on Protection of Cultural Relics, international houses like Sotheby's and Christie's are not allowed to sell Chinese antiques, classic Chinese paintings or other items from before 1911. In other words, they are dealt out of the game in sectors Chinese collectors are most fond of and the most valuable fields their local peers are working at.

"It's unfair," he continued. "Mainland auction houses, such as Poly, can get a license today and open for business in Hong Kong tomorrow. It's cheap to register a company in Hong Kong, where we have a free and fair playground. There are, however, plenty of curbs on us going into the mainland market. The restrictions placed on outsiders give the domestic players huge advantages through unfair protections."

But the speed with which the Chinese market is growing, says Ching, is amazing. In 2005, mainland bidders counted only 4 percent of Sotheby's Asian clientele. Today, they comprise a quarter of its customer base. During the market peak of 2011, mainland clients climbed as high as 30 percent. "Seven years ago when I joined Sotheby's, there were only 50-plus people dealing in Asia business. Now we have more than 200 staff here," says Ching. "In Hong Kong, especially when it's an auction of Chinese paintings or porcelain, the majority of those in attendance are mainland bidders. That's why we are so dedicated to tap this market."

So, as Ching points out, with that much market potential, Sotheby's is in it for the long haul. "We have to comply with the existing rules and work on what we can do inside the framework," says Ching. "Jewelry and watches, wine, contemporary art and classic Western arts are our strong suits too."

At last, after years of trying, the top two international houses, both established in 18th-century London, found their way to tap the mainland market.

On Sept 27, 2012, Sotheby's announced its joint venture Sotheby's (Beijing) Auction Co Ltd with Beijing Gehua Cultural Development Group, a State-owned corporation. The new company, 80 percent owned by Sotheby's, immediately proclaimed itself, "the first international auction house licensed to conduct auctions in China". An ice-breaking auction the same night sold a Chinese sculpture to a Chinese collector for 1.69 million yuan ($276,150).

Following in their steps, Christie's, Sotheby's old rival, broke the news on Apr 9 that it was "the first international fine art auction company to be granted a license to operate independently in the Chinese mainland".

"We can establish a sole proprietorship too, but as a new player, it was important for us to know how to get various approvals and access the right market," says Sotheby's Ching. "Gehua is a perfect match. They have good networks with the authorities, the cultural circle and the media. And it's Beijing, where all the leading domestic and international galleries are situated and all the high cap artists live."

Tax-free auction haven

Gehua operates a major local art museum in the capital, China Millennium Monument, but even more importantly, it's building a logistics and exhibition center in Beijing's Tianzhu Free Trade Zone, at the end of Beijing International Airport's third runway. That new facility will serve as a tax-free haven for the auction business. On the mainland, imported art is dutiable at the same rate as luxury goods - that's as much as 30 percent, and surely enough to discourage potential local buyers.

"So the practical solution," says Ching, "is to hold the auction in the free trade area. As long as bidders store the works in our warehouse, they don't have to pay the tax. Foreign buyers, like those from Southeast Asia, can take their purchases with them when they leave. Art investors can leave the works in our warehouse and sell them later. People buy for different reasons."

With the market changing so rapidly, the Gehua joint venture proved a masterstroke for Sotheby's. "The mainland auction market is sophisticated," Ching tells China Daily. "We couldn't wait outside until everything was ready. Now that we've managed to get in the market, we have the chance to gather experience along the way. One day when the door totally opens, we will be well-prepared."

With its first Beijing season scheduled in October, Sotheby's is also in talks with The European Fine Art Fair to hold a joint fair in Beijing in 2014. TEFAF is the biggest European art fair. It represents 260 galleries from 20 countries. The focus of the Beijing extravaganza will be antiques, old masters' paintings and European furniture.

"Cultural communication is a two-way street," says Ching. "Chinese collectors are maturing and are starting to appreciate Western arts. As the country grows stronger, it will also become more internationalized - just the way Japan emerged as a strong buyer of Western art in the 1980s. We are optimistic. We expect to see more Western art in Chinese museums. In the long term, we expect to compete with Chinese rivals on a platform that is balanced and fair."

Contact the writer at emmadai@chinadailyhk.com

(HK Edition 08/30/2013 page6)