Sotheby’s gains foothold in mainland China
Ten-year partnership with state-owned Beijing GeHua Art Company will allow auction house to use planned Beijing freeport
By Charlotte Burns. Web only
Published online: 10 September 2012
Sotheby’s has signed a ten-year agreement with the state-owned Beijing GeHua Art Company on 3 September, investing $1.2m for 80% ownership of a new joint venture between the two companies. The move “will strategically enhance Sotheby’s long-term presence in mainland China and allow it to potentially capitalise on the opportunities presented by the Chinese art market,” according to Sotheby’s financial report to investors. The agreement means the firm can now operate in Beijing—foreign auction houses are restricted to only doing business in Hong Kong, unless they partner with a domestic firm in the mainland.
Financial analysts have welcomed the agreement and Sotheby’s shares rose to $35.74 after the news broke. Sotheby’s “brings art market gravitas (and a small investment) while Beijing GeHua Art Company brings Chinese market prerequisites,” according to a report published by David Schick, the managing director of Stifel Nicolaus Equity Research. The agreement “shows the power of the Sotheby’s brand—with just $1.2m investment [Sotheby’s] has essentially been invited to partner with a state-owned art venture,” the report adds.
The move will allow Sotheby’s to take advantage of a planned freeport that GeHua is developing within the Tianzhu Free Trade Zone in Beijing. The freeport “will serve as a tax-advantaged storage location and provide a platform for art-related auctions and private selling exhibitions of non-cultural relics, travelling exhibitions, and educational activities,” according to Sotheby's report.
Under the terms of the contract, GeHua will not allow any other company to conduct auctions or selling shows within its authorised areas of the freeport, and is restricted from forming partnerships with specified competitors. However, no date has been set for the construction of the freeport, and Sotheby’s has the right to end its contract should GeHua backtrack on its plans.
Sotheby’s has been investing heavily in Asia. It opened a 15,000 sq. ft space in Hong Kong in May, which is costing the company an extra $4m in annual rent. The space allows the auction house to have a year-round exhibition presence: previously, it rented space for its twice-yearly auctions.
“We certainly believe the Chinese market is slowing…[but] over time this is a substantial opportunity,” Schick says. Despite a recent cooling-off, China is the world’s largest art market, even if the actual figures are contested (the French site Artprice estimates that China represented 41% of the global fine art market in 2011, while the art economist Clare McAndrew put the figure at 30% in her report, “The International Art Market in 2011”).
Sotheby’s and Christie’s operate out of Hong Kong but have been restricted from auctioning in mainland China—unless they have a Chinese partner. The agreement represents the latest move in a power play between the two auction stalwarts and a host of Beijing-based companies that are less than a generation old but have leap-frogged to the lead in international sales. One of the major rivals, China Guardian, which opened in 1994 and is now the fourth biggest auction house in the world, according to the French industry association, Conseil des Ventes, is taking on Sotheby’s and Christie’s in Hong Kong by hosting its first sale there on 7 October. It also opened a New York office last year.
This article was corrected on 12 September. Sotheby's has an 80% ownership of the joint venture, not the firm Beijing GeHua Art Company.
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